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PRINCIPLES  OF  POLITICAL  ECONOMY 


PRINCIPLES 


POLITICAL   ECONOMY 


BY 


J.  SHIELD  NICHOLSON,  M.A.,  D.Sc. 

PROFESSOR  OF  POLITICAL  ECONOMY  is  TUB  UNIVERSITY  OF  EDINBFBGH  : 

SOMETIME  EXAMINER  IN  THE  UNIVERSITIES  OF  CAMBRIDGE, 

LONDON,  AND  VICTORIA 


VOL.  I. 


||ork 
MACMILLAN    AND    CO. 

AND    LONDON 
1893 

All  rights  reserved 


COPYRIGHT,  1893, 
BY  MACMILLAN  AND  CO. 


Xortooot)  }prtss : 

J.  S.  Gushing  &  Co.  —  Berwick  &  Smith. 
Boston,   Mass.,   U.S.A. 


PREFACE. 


WHEN  I  was  appointed  in  1880  to  the  Chair  of  Political 
Economy  in  the  University  of  Edinburgh  I  made  several  good 
resolutions.  One  that  I  kept  was  not  to  write  out  my  lectures 
in  full.  With  short  notes  it  is  much  more  easy  to  alter  the 
material,  and  to  adjust  the  emphasis  according  to  the  devel- 
opment of  the  subject  or  changes  in  affairs.  To  begin  with, 
I  took  Mill's  Principles  of  Political  Economy  as  a  text-book. 
Mill  mastered  and  expressed  with  great  lucidity  and  force  of 
style  all  that  he  considered  best  in  his  predecessors,  and  if  he 
was  not  very  original  himself,  he  has  been  the  cause  or  occa- 
sion of  originality  in  others.  In  England  at  any  rate  many 
of  the  recent  changes  in  economic  theory  may  be  traced  to 
the  criticism  or  development  of  Mill's  teaching.  At  the  same 
time  the  abundance  of  these  commentaries  —  to  say  nothing 
of  the  work  of  both  foreign  and  English  writers  on  independ- 
ent lines  —  has  rendered  Mill's  treatment  year  by  year  less 
satisfactory  as  a  survey  of  the  whole  subject,  though  it  is 
still  excellent  for  students  who  have  time  to  trace  the  growth 
of  economic  thought. 

The  present  work  is  intended  to  cover  the  same  ground  as 
that  of  Mill.  It  has  grown  up  out  of  my  notes  in  the  way 
described,  and  whilst  presenting  the  older  doctrines  takes 
account  also  of  subsequent  modifications.  It  must  be  regarded, 
however,  not  so  much  as  an  abstract  of  the  opinions  of  others 
as  an  independent  attempt  to  recast  the  subject  in  the  light 
of  these  opinions. 


vi  PREFACE. 

In  reality  I  owe  far  more  to  Adam  Smith  than  to  Mill. 
The  great  defect  of  Mill's  work  is  the  want  of  historical 
knowledge,  whilst  a  large  part  of  the  Wealth  of  Nations  is 
history  of  the  highest  order.  I  have  availed  myself  of  the 
authority  of  the  older  master  to  include  a  much  greater 
amount  of  history  than  is  usual  in  a  statement  of  principles. 
The  recent  attention  devoted  to  economic  history  seems  also 
to  make  this  procedure  desirable. 

The  mode  in  which  the  materials  for  this  work  were  grad- 
ually collected  and  modified  renders  it  impossible  for  me  to 
make  due  acknowledgment  to  every  writer,  though  I  have 
tried  to  do  so  throughout  the  book.  A  teacher  cannot  trace 
the  origin  of  every  change  of  exposition. 

I  must,  however,  express  my  great  indebtedness  to  Pro- 
fessor Sidgwick  and  Professor  Marshall,  not  only  for  their 
published  writings  but  for  the  influence  of  their  teaching 
whilst  a  student  at  Cambridge  —  to  the  former  especially  for 
the  ideas  recently  expanded  in  the  Elements  of  Politics,1  to  £he 
latter  for  the  more  purely  economic  work  that  has  now  taken 
a  permanent  form  in  the  Principles  of  Economics.  I  take  the 
greater  pleasure  in  this  acknowledgment  as  I  differ  from  both 
in  at  least  one  favourite  doctrine. 

Dr.  Keynes  has  kindly  revised  the  proofs  whilst  passing 
through  the  press,  and  my  colleague,  Professor  Wallace,  has 
aided  me  with  his  practical  knowledge  in  the  chapters  on 
land  and  agriculture.  Mr.  A.  B.  Clark,  M.A.,  a  former  pupil, 

has  prepared  the  Index. 

,7.    SHIELD   JUCHOLSON. 

UNIVERSITY  OF  EDINBURGH, 
September,  1898. 

1  Cf.  also  the  same  writer's  Principles  of  Political  Economy,  Book  III. 


CONTENTS. 


INTRODUCTION. 

PAGE 

§  1.     Definition  of  political  economy 3 

2.  The  popular  conception  of  wealth 5 

3.  The  economic  conception  of  wealth .  6 

4.  Political  economy  as  a  science 10 

6.    The  methods  of  political  economy ' 18 


BOOK   I. 
PRODUCTION. 

CHAPTER  I.  —  Utility. 

§  1.     Meaning  of  utility 23 

2.     Economic  utility 26 

CHAPTER  II.  —  Production. 

§  1.     Definition  of  production 32 

2.  The  production  of  material  wealth 33 

3.  Production  of  personal  or  immaterial  wealth 37 

4.  Classification  of  the  various  kinds  of  production 44 

CHAPTER  III.  —  Consumption. 

§  1.     Meaning  of  consumption  —  objective  and  subjective     ....  48 

2.  Kinds  of  consumption 49 

3.  The  measurement  of  economic  utility 61 

4.  Total  and  final,  or  marginal,  utility  —  exposition 63 

5.  Total  and  final  utility  —  criticism 65 

6.  Consumer's  rent 57 

7.  The  measurement  of  utility  by  labour 60 

vii 


viii  CONTENTS. 

CHAPTER  IV.  —  Nature. 

PAGE 

§  1.     The  functions  of  nature  in  material  production 66 

2.  Of  the  gifts  of  nature  some  are  practically  unlimited,  others 

limited 68 

3.  The  natural  constituents  hi  national  production 70 

CHAPTER  V.  —  Labour. 

§  1.    Twofold  meaning  of  labour,  and  first  of  subjective  labour  .     .  72 

2.  Quantity  of  labour  (subjective)  explained 73 

3.  Causes  of  variations  in  the  quantity  of  labour  (subjective)  .    .  75 

4.  The  efficiency  of  labour  (objective) 78 

CHAPTER  VI.  —  Capital. 

§  1.     Definition  of  capital,  and  first  of  revenue  capital 87 

2.  Production  capital 88 

3.  Consumption  capital 90 

4.  Root-idea  of  capital 91 

5.  Disputed  questions  regarding  capital 92 

6.  Fixed  and  circulating  capital 96 

7.  Examination  of  Mill's  views  on  the  relations  of  labour  and 

capital  in  production 97 

t~*L6*+**  t 
CHAPTER  VII.  —  Division  of  Labour. 

§  1.     Meaning  of  division  of  labour 104 

2.  Separation  of  employments 106 

3.  Specialisation  of  skill 108 

4.  Separation  of  employments  involves  combination 112 

6.    Division  of  labour  is  limited  by  the  extent  of  the  market    .    .  112 

6.  Division  of  labour  and  the  localisation  of  industry 114 

7.  The  disadvantages  of  division  of  labour 117 

CHAPTER  VIII.  —  Production  on  a  Large  and  Produc- 
tion on  a  Small  Scale. 

§  1.     Division  of  labour  tends  to  production  on  a  large  scale   .    .    .  122 

2.  The  management  of  production  on  a  large  scale  in  manufac- 

tures    124 

3.  Counteracting  causes  to  the  concentration  of  labour  and  capi- 

tal       ...  129 

4.  Joint-stock  companies 131 


CONTENTS. 


CHAPTER  IX.  —  Large  and  Small  Farming. 

§  1.     Statement  of  the  question 138 

2.  Gross  produce  and  net  produce 138 

3.  On  the  meaning  of  the  term  advantage 141 

4.  The  economies  of  large  and  small  farming  compared  ....  142 

5.  The  influence  of  natural  conditions 146 

G.     The  influence  of  capital,  and  the  rate  of  profit 147 

7.  The  influence  of  the  condition  of  labour  and  of  relative  wages  148 

8.  The  influence  of  legislation 148 

CHAPTER  X.  —  The  Law  of  Diminishing  Return  and  the 
Law  of  Increasing  Return. 

§  1.     Preliminary  explanation 151 

2.  The  law  of  diminishing  return,  as  applied  to  the  production 

of  corn 154 

3.  The  law  of  diminishing  return  as  applied  to  other  kinds  of 

raw  produce 165 

4.  How  the  law  of  diminishing  return  may  be  counteracted     .    .  169 

5.  The  law  of  increasing  return 171 

CHAPTER  XI.  —  The  Principle  of  Population. 

§  1.     The  work  of  Malthus 175 

2.  The  principle  of  population 179 

3.  The  standard  of  comfort 190 

4.  The  pressure  of  population  on  the  means  of  subsistence  .     .    .  194 

CHAPTER  XII.  —  The  Growth  of  Material  Capital. 

§  1.     Meaning  of  the  growth  of  (capital  material) 197 

2.  The  power  to  save 199 

3.  The  will  to  save 201 

4.  Of  the  accumulation  of  different  kinds  of  capital 210 

5.  Methods  of  estimating  the  increase  of  material  capital    .    .    .  213 


BOOK  II. 

DISTRIBUTION. 
CHAPTER  I.  —  The  Distribution  of  Wealth. 

§  1.     Meaning  of  distribution 219 

2.     On  Mill's  distinction  between  the  laws  of  production  and  those 

of  distribution .  ,     220 


X  CONTENTS. 

PAGE 

§  3.    The  theory  of  sovereignty 222 

4.  Application  of  sovereignty  to  the  distribution  of  wealth  .     .     .  223 

5.  Historical  examples  of  variations  in  distribution 226 

6.  Distribution  and  exchange 229 

7.  Ideal  economic  distribution 231 

CHAPTER  II.  —  The  Institution  of  Private  Property. 

§  1.     The  economic,  as  distinguished  from  the  legal  and  ethical, 

characteristics  of  private  property 235 

2.  The    economic    bases    of    private    property  —  and   first    of 

(a)  labour 238 

3.  The  economic  bases  of  private  property  —  (6)  contract  .     .     .  240 

4.  Economic  bases  of  private  property  —  (c)  capital 242 

5.  On  security  as  a  condition  precedent  to  freedom  of  contract 

and  private  property 243 

6.  Criticism  of  the  views  of  Bentham 245 

7.  On  (d )  prescription  as  an  economic  basis  of  property     .    .     .  247 

CHAPTER  III. — Bequest  and  Inheritance. 

§  1.    General  view  of  bequest  and  inheritance 249 

2.  Inheritance 250 

3.  Bequest 253 

CHAPTER  IV.  —  Property  in  Land  and  Compensation 
for  Expropriation. 

§  1.     Mill's  views  on  property  in  land 256 

2.  Economic  advantages  of  private  property  in  land 259 

3.  On  the  limited  quantity  of  land  in  certain  respects     ....  262 

4.  Economic  principles  of  compensation 264 

CHAPTER  V.  —  Competition  and  Custom. 

§  1.     Competition  and  distribution 268 

2.  Custom  and  distribution 269 

3.  The  antagonism  of  competition  and  custom 270 

CHAPTER  VI.  —  Custom  and  Village  Communities. 

§  1.    Custom  as  affecting  the  ownership  and  the  occupation  of  land  272 

2.  The  Russian  mir 273 

3.  Other  examples  of  existing  village  communities 279 

4.  Survivals  in  Great  Britain 280 

5.  The  mediaeval  village  community 283 

6.  Origin  of  English  village  communities 285 

7.  Summary  of  results 288 


CONTENTS. 


CHAPTER  VII.  —  Feudalism. 

PAGE 

§  1.     On  the  economic,  as  distinguished  from  other,  aspects  of 

feudalism 290 

2.  Principal  characteristics  of  feudalism 291 

3.  Peculiar  restrictions  on  the  ownership  of  land  under  feudalism  293 

4.  Feudalism  and  the  towns  and  cities 295 

5.  Economic  causes  of  the  decay  of  feudalism  —  (a)  the  increase 

of  security 298 

6.  The  decay  of  feudalism  —  (6)  extension  of  money  payments  .  300 

7.  The  decay  of  feudalism  —  (c)  changes  in  land  laws    ....  305 

CHAPTER  VIII.  —  Modern  Ownership  of  Land  and 
Industrial  Freedom. 

§  1.     Outline  of  the  argument 307 

2.  On  difficulties  in  the  transfer  of  land 307 

3.  The  advantages  of  large  estates 309 

4.  Recent  modifications  of  the  economic  principles  of  ownership 

of  land 312 

CHAPTER  IX.  —  Contracts  for  the  Hire  of  Land. 

§  1.    Free  trade  in  the  hire  of  land 314 

2.  Rent  under  the  free  trade  system 314 

3.  Fair  or  judicial  rents 315 

4.  Compensation  for  improvements  under  the  free  trade  system  .  318 

5.  Tenant  right  and  free  sale 319 

6.  Duration  of  tenancy 320 

7.  Recent  changes  in  the  English  and  Scottish  laws  affecting  the 

hire  of  land 321 

8.  Conclusion 322 

CHAPTER  X.  —  Wages  and  Theories  of  Wages. 

§  1.    Preliminary  account  of  custom  and  competition  as  affecting 

wages 324 

2.  Wages  as  the  real  reward  for  a  quantity  of  labour 325 

3.  Wages  as  payment  for  work  done 328 

4.  Conflict  of  interests  between  labourer  and  employer   ....  329 

5.  Harmony  of  interests  of  labourer  and  employer 331 

6.  The  natural  rate  of  wages 333 

7.  The  normal  rate  of  general  wages 336 

8.  The  wages-fund  theory 339 

9.  Criticism  of  the  theory 343 

10.     Wages  considered  as  paid  from  the  produce  of  labour     .     .     .  345 


xii  CONTENTS. 

CHAPTER  XI.  —  Relative   Wages. 

PACK 

§  1.     The  determination  of  relative  wages 348 

2.  The  minimum  of  wages  that  labour  will  accept 349 

3.  The  maximum  of  wages  that  employers  can  afford    ....  352 

4.  Natural  causes  of  differences  of  wages  in  different  employ- 

ments      353 

5.  Conditions  of  the  operations  of  the  natural  causes     ....  355 

6.  Artificial  causes  of  difference  of  wages  in  different  employ- 

ments      356 

CHAPTER  XII.  —  The  Effects  of  Law  and  Custom  on 
Wages. 

§  1.     Modes  in  which  law  and  custom  may  affect  wages     ....  367 

2.  Slavery,  serfdom,  and  patria  potestas 357 

3.  Apprenticeship 360 

4.  Craft  guilds 362 

5.  Legislation  with  respect  to  masters  and  servants 365 

6.  The  factory  acts 369 

7.  The  poor  laws 371 

8.  Combinations 381 

9.  Conclusion 387 

CHAPTER  XIII.  —  Profits. 

§  1.     Profits  as  dependent  on  the  feelings  of  the  capitalist      .    .    .  388 

2.  Profits  as  dependent  on  the  cost  of  labour 388 

3.  Loan  interest 389 

4.  Loan  interest  and  profit  interest 392 

5.  The  minimum  rate  of  interest  as  an  element  of  profits  .     .     .  393 

6.  The  equality  of  interest  considered  as  an  element  of  profits  .  394 

7.  The  inter-connection  of  profit-interest  and  loan-interest     .     .  396 

8.  Insurance  against  risk 396 

9.  Wages  of  superintendence 399 

10.    The  element  of  chance  in  profits 400 

CHAPTER  XIV. — Economic  Rent. 

§  1 .    Ambiguity  of  the  term  rent 402 

2.  The  economic  rent  of  agricultural  land  in  its  first  form      .     .  404 

3.  The  theory  of  economic  rent  in  its  second  form 406 

4.  Economic  rent  and  monopoly  rent 409 

6.     Other  forms  of  economic  rent 410 

6.     Of  analogies  to  economic  rent  and  of  quasi-rent 411 


CONTENTS.  xiii 

PAGE 

§  7.     The  progress  of  economic  rent 414 

8.     Conclusion 415 

Appendix  to  Chap.  XIV.     The  causes  which  determine  the 

fair  rent  of  land .  417 


CHAPTER  XV.  —  Economic  History  and  Economic 
Utopias. 

§  1.     The  reality  of  economic  history 424 

2.  The  ideality  of  economic  Utopias 425 

3.  Modern  socialism  —  exposition 426 

4.  Modern  socialism  —  criticism 428 

5.  Modern  socialism  —  special  criticism 432 


INDEX    .  .    435 


PRINCIPLES   OF   POLITICAL  ECONOMY. 
INTRODUCTION. 


PRINCIPLES  OF  POLITICAL  ECONOMY, 


INTRODUCTION. 

§  1.  Definition  of  Political  Economy.  As  it  is  impossible 
to  compress  a  treatise  into  a  sentence,  it  follows  that  a  pre- 
liminary definition  of  any  science  can  be  neither  adequate 
nor  exhaustive.  At  the  same  time  it  seems  as  reasonable 
as  it  is  usual  to  indicate  in  an  introductory  chapter  the 
nature  of  the  subject-matter,  the  objects  to  be  attained, 
and  the  methods  to  be  adopted,  in  the  systematic  treatment 
of  any  department  of  knowledge.  Such  a  preliminary 
statement  is  especially  desirable  in  the  case  of  political 
economy,  in  which  both  the  adjective  and  the  substantive 
naturally  suggest  what  most  writers  carefully  exclude,  for 
political  economy  is  usually  held  to  have  little  or  nothing 
to  do  with  general  politics  on  the  one  hand  or  domestic 
economy  on  the  other.  Its  province  may,  perhaps,  be  best 
described  provisionally  in  the  words  of  Adam  Smith,  as  an . 
inquiry  into  the  nature  and  causes  of  the  wealth  of  nations. 
This  short  title  has  been  amplified  and  formalised  by  later 
writers  into  the  science  which  treats  of  the  laws  of  the 
production,  distribution,  and  exchange  of  wealth.  To  this 
description  some  have  added  a  department  of  consump- 
tion, and  others  the  principles  of  governmental  control,  or 
the  art  of  political  economy.  It  is  noteworthy,  however, 
that  on  the  whole,  at  any  rate  in  the  case  of  English 
writers,  the  field  has  been  contracted.  Many  topics  have 

3 


4  PRINCIPLES  OF   POLITICAL  ECONOMY. 

dropped  from  systematic  treatment  which  were  included 
by  Adam  Smith,  as,  for  example,  the  expense  of  justice,  of 
defence,  and  of  education  both  secular  and  religious.  The 
subject,  it  may  be  alleged,  has  gained  in  exactness  what  it 
has  lost  in  breadth,  and  has  only  obeyed  the  tendency  to 
specialisation  common  to  all  sciences.  There  has,  unques- 
tionably, been  a  gain  in  exactness,  especially  since  the 
application  of  mathematical  ideas ;  but  the  natural  reaction 
against  this  abstract  treatment  threatened  at  one  time  to 
break  down  all  boundaries,  and  to  make  political  economy 
as  wide  and  vague  as  general  sociology.  In  the  present 
work  an  attempt  will  be  made  to  state  with  precision  the 
general  theory  without  reducing  it  to  a  branch  of  applied 
mathematics,  and  to  build  on  the  broad  foundations  of 
Adam  Smith  and  Mill  without  trenching  unduly  on  the 
domain  of  ethics,  jurisprudence,  or  politics.  The  abun- 
dance of  material  is  so  great  that  the  main  difficulty  is  in 
selection  and  rejection,  or,  in  one  word,  in  proportion. 
|  There  is  not  a  chapter  in  the  Wealth  of  Nations  which 
•  could  not  now  be  enriched  from  the  subsequent  labours  of 
historians,  philosophers,  and  jurists  as  well  as  of  professed 
economists. 

(The  history  of  any  progressive  nation  reveals  great 
differences  in  the  variety  and  the  amount  of  its  wealth  at 
different  times ;  it  shows  fundamental  changes  in  the 
methods  of  production,  distribution,  and  exchange.  A 
comparison  of  existing  nations,  scattered  over  the  world, 
furnishes  living  examples  of  the  records  of  the  past. 
Religion,  art,  government,  morality,  and  other  forces  have 
influenced,  and  continue  to  influence,  nations  both  as  re- 
gards the  nature  and  the  causes  of  their  wealth ;  but  that 
the  phenomena  of  wealth  are  capable  of  separate  classifica- 
tion, and  the  causes  of  separate  investigation,  the  extensive 
literature  of  political  economy  gives  abundant  testimony. 
With  the  Wealth  of  Nations  more  than  a  century  old, 
it  is  absurd  to  go  about  to  prove  that  it  could  not  have 
been  written. 


INTRODUCTION.  5 

§  2.  The  Popular  Conception  of  Wealth.  But  what  is 
wealth  ?  At  first  sight  it  seems  sufficient  to  reply  in  the 
words  of  Mill,  that  every  one  has  a  notion  sufficiently 
correct  for  common  purposes  of  what  is  meant  by  wealth. 
It  may,  however,  be  said,  with  a  similar  impatience  of 
metaphysical  nicety,  that  every  one  has  for  common  pur- 
poses an  equally  adequate  idea  of  right  and  wrong  accord- 
ing to  the  laws  of  his  country,  and  ignorance  of  the  law 
is  never  admitted  as  a  justification  of  the  transgressor. 
Yet  the  author  of  a  celebrated  law  book  did  well  to  advise 
the  student  in  the  first  place  to  get  rid  of  every  idea  that 
he  had  formed  on  the  subject ;  and,  for  the  acquisition  of 
almost  every  art  and  science,  it  is  generally  recognised  that 
it  is  better  for  the  mind  to  be  at  the  outset  a  tabula  rasa 
than  impressed  by  the  runic  characters  of  popular  opinion. 
Mill  himself  after  the  passage  quoted  at  once  proceeds  to 
show  by  the  example  of  the  Mercantile  system  that  an 
erroneous  view  of  the  nature  and  uses  of  wealth  gave,  for 
many  generations,  a  false  direction  to  the  commercial 
policy  of  Europe.  To  Mill  the  error  appeared  so  glaring  i 
that  he  goes  on  to  say:  "It  often  happens  that  the  uni-f 
versal  belief  of  one  age  of  mankind  —  a  belief  from  which 
no  one  was,  nor  without  an  extraordinary  effort  of  genius 
and  courage  could,  at  the  time,  be  free  —  becomes  to  a  sub- 
sequent age  so  palpable  an  absurdity,  that  the  only  diffi- 
culty, then,  is  to  imagine  how  such  a  thing  can  ever  have 
appeared  credible."  As  regards  the  particular  policy1 
which  called  forth  this  expression  of  opinion,  there  is  little 
doubt  that  Mill  was  guilty  of  exaggeration,  but  there  can 
be  no  doubt  as  to  the  truth  of  the  general  position.  In 
the  picturesque  language  of  Bacon:  "The  idols  of  the* 
market-place  are  the  most  troublesome  of  all  —  those, 
namely,  which  have  entwined  themselves  round  the  under- 
standing from  the  associations  of  words  and  names.  For 
men  imagine  that  their  reason  governs  words  whilst,  in 

1  Cf.  Roscher,  Geschichte  der  National-Oekonoinik  in  Deutschland;  and 
Cunningham,  Grmrth  of  Industry  and  Commerce,  Vol.  IT. 


6  PRINCIPLES   OF   POLITICAL   ECONOMY. 

fact,  words  react  upon  the  understanding;  and  this  has 
rendered  philosophy  and  the  sciences  sophistical  and  inac- 
tive." And  in  political  economy,  above  all  the  sciences, 
we  may  expect  the  idols  of  the  market-place  to  abound. 
Industrial  history  is  full  of  examples  of  stubborn  fallacies 
which  would  at  once  have  been  loosened  by  a  Socratic 
induction,  and  altogether  dispelled  by  a  scientific  analysis. 
It  is  only  the  deceptive  familiarity  of  common  discourse 
which  conceals  similar  errors  at  the  present  time.  Accord- 
ingly, in  the  opinion  of  the  present  writer,  it  is  still  one  of 
the  main  functions  of  the  economist  to  discover  what  ideas 
|  the  words  stand  for,  and  to  analyse  vague  and  complex 
notions  into  their  component  elements.1  It  was  soon  ob- 
served that  the  term  wealth  required  a  critical  exposition 
of  this  kind,  and  considerable  labour  has  been  devoted  to 
the  task. 

§  3.  The  Economic  Conception  of  Wealth.  The  first 
sittings  —  again  to  adopt  Baconian  language  —  of  the 
popular  usage  of  the  term  wealth  by  half  a  century  of 
systematic  writers  resulted  in  the  definition  adopted  by 

I  Mill.  "Wealth,"  he  writes,  "may  be  defined  all  useful 
or  agreeable  things  which  possess  exchangeable  value ; 
or,  in  other  words,  all  useful  or  agreeable  things  which 
cannot  be  obtained  in  the  quantity  desired  without  labour 
or  sacrifice."  The  object  of  this  definition  was  to  make 
explicit  in  common  language  what  was  supposed  to  be 
implicit  in  common  thought  as  to  the  nature  of  wealth. 
At  once,  however,  the  question  arose :  Does  this  defini- 
tion exclude  or  include  more  or  less  of  the  things  which 
are  as  a  matter  of  fact  embraced  in  the  popular  classifica- 
tion or  inventory  of  wealth  ?  In  the  language  of  logicians  : 
Does  the  denotation  correspond  to  the  connotation  ?  This 

1  "  What  we  gain  by  discussing  a  definition  is  often  but  slightly  repre- 
sented in  the  superior  fitness  of  the  formula  that  we  ultimately  adopt ;  it 
consists  chiefly  in  the  greater  clearness  and  fulness  in  which  the  charac- 
teristics of  the  matter  to  which  the  formula  refers  have  been  brought 
before  the  mind  in  the  process  of  seeking  it." — SIDGWICK,  Principles, 
Rk.  I.,  Oh.  II.,  §  1. 


INTRODUCTION.  7 

general  question  was  again  resolved  into  a  number  of 
special  tests,  of  which  the  following  are  prominent  exam- 
ples :  Does  the  term  "  things  "  include  immaterial  as  well 
as  material  things  ?  Does  exchangeable  value  imply  that 
the  things  must  be  actually  capable  of  transference  them- 
selves, or  is  it  merely  a  right  which  is  transferred?  Is 
exchangeable  value  essential  to  the  wealth  of  a  nation  as 
distinct  from  that  of  an  individual?  Must  the  things  be 
comparatively  permanent  and  capable  of  accumulation? 
Are  things  of  no  use  to  any  one  but  the  owner  a  part  of  his 
wealth  ?  Is  labour  a  necessary  foundation  ?  Is  the  wealth 
of  the  nation  simply  the  sum  total  of  the  wealth  of  indi- 
viduals? These  questions  —  and  they  are  only  typical, 
and  taken  almost  at  random  —  were  clinched  by  an  appeal 
to  particular  instances ;  and  much  ingenuity  was  displayed 
in  considering  such  examples  as  skill,  credit,  wild  ani- 
mals, minerals  in  the  bowels  of  the  earth,  bank  money  not 
in  the  vaults  of  the  bank,  break-waters,  industrial  organi- 
sation, the  natural  and  indestructible  powers  of  the  soil, 
the  song  of  a  prima  donna,  and  the  advertising  connection 
of  a  newspaper.  Nor  is  it  sufficient  to  say  of  science  as  of 
l;tw  •  fa  mini i)i is  non  curat,  for  in  ideas  as  in  creatures  the 
border  line  of  species  is  often  most  instructive. 

The  conflict  of  answers  suggested  the  necessity  of  a 
deeper  analysis,  and  it  soon  appeared  that  the  definition 
contained  conceptions  which  demanded  a  more  careful 
explication  than  wealth  itself.  Things  were  no  longer 
described  as  useful  or  agreeable,  but  were  said  to  possess 
utility.  Common  thought,  aided  by  a  vague  reminiscence 
of  Bentharn,  and  the  utilitarian  philosophy,  might  acquiesce 
in  the  definition  of  utilit}-  as  '  the  capacity  to  satisfy  a 
desire  or  serve  a  purpose,'  however  trivial,  ornamental,  or 
wasteful;  but  when  economists  generally  adopted  the 
distinction  made  by  Jevons  between  final  and  total  utility, 
they  passed  the  extreme  limits  of  popular  phraseology 
and  comprehension. 

Again,   as  regards   the  characteristic   of   exchangeable 


8  PRINCIPLES   OF   POLITICAL   ECONOMY. 

value,  which  is  supposed  to  be  a  simple  and  obvious  attri- 
bute of  wealth,  Adam  Smith  had  already  exposed  one 
fundamental  ambiguity,1  and  had  lost  his  way  in  another;2 
Ricardo  had  discovered  and  Mill  had  expressed  other  dis- 
tinctions ;  but  the  conception  of  value  was  still  misty 
until  Cournot  and  the  mathematicians  applied  their  analy- 
sis. Long  before  this  point  was  reached  common  thought 
was  Again  left  behind.  Common  thought,  for  example, 
has  no  more  accurate  conception  of  '  things  in  general ' 
than  of  a  '  thing  in  itself.'  8 

Even  labour  was  not  left  to  bear  its  natural  and  obvious 
meaning,  whatever  that  may  be.  The  first  of  the  notes 
and  dissertations,  appended  to  M'Culloch's  edition  of  the 
Wealth  of  Nations,  is  entitled,  '  Of  the  Definition  of 
Labour.'  By  passing  with  the  apparent  authority  of 
Adam  Smith  from  labouring  men  to  labouring  cattle,  and 
without  that  authority  from  labouring  cattle  to  labouring 
machines  and  natural  agents,  labour  becomes  at  last  '  any 
action  that  tends  to  bring  about  any  desirable  result,'  and 
thus  would  include,  inter  alia,  the  fermentation  of  wine  in 
the  cask.  Similar  difficulties  arise  when  labour  is  regarded, 
—  to  make  use  of  terms  which  suggest  of  themselves  the 
divergence  from  common  thought,  —  not  from  the  objec- 
tive, but  from  the  subjective,  point  of  view.  Adam  Smith 
himself  has  declared  that  the  greater  part  of  people  under- 
I  stand  better  what  is  meant  by  a  quantity  of  a  particular 
|  commodity  than  by  a  quantity  of  labour,  and  that  the  one 
is  a  plain,  palpable  object,  and  the  other  an  abstract 
notion,  not  altogether  so  natural  and  obvious.  And  the 
notion  appears  altogether  the  reverse  of  natural  and  obvi- 
ous when  it  is  briefly  described  as  disutility,  or  negative 
utility. 

1  Value  in  use  and  value  in  exchange. 

3  Real  and  nominal  price. 

8  "By  the  price  of  a  thing  we  shall  henceforth  understand  its  value 

I  in  money ;  by  the  value,  or  exchange  value  of  a  thing,  its  general  power 
of  purchasing  ;  the  command  which  its  possession  gives  over  purchasable 
commodities  in  general."  —  MILL. 


INTRODUCTION.  9 

Sacrifice,  the  last  word  in  Mill's  definition,  —  wealth 
being  held  only  to  include  those  things  which  cannot  be 
obtained  in  sufficient  abundance  without  labour  or  sacri- 
fice, —  naturally  suggests  the  abstinejice  of  the  capitalist. 
This  well-chosen  expression  of  Mr.  Senior,  as  Mill  phrases 
it,  has  given  rise  to  a  keen  controversy,  which  is  still 
raging. 

Thus,  on  analysis,  the  traditional  economic  definition  of 
wealth  is  discovered  to  contain  elements  which  apparently 
require  more  explanation  than  the  concrete  reality,  just  as 
man  himself,  who  in  ordinary  life  is  regarded  as  a  com- 
mon sort  of  body  with  a  common  sort  of  soul,  without  any 
shadow  of  mystery,  is  proved,  on  examination,  to  be  a 
creature  intricate  and  wonderful  enough  to  furnish  mate- 
rials for  many  sciences  and  religions. 

It  will,  however,  be  found,  that  in  certain  parts  of  the 
subject  this  familiar  conception  of  wealth  is  not  only  ade- 
quate, but  is  better  adapted  for  the  argument  than  an 
amalgamation  of  technical  notions,  since  much  of  political 
economy  requires  rather  practical  wisdom  than  scientific 
research.  From  the  modern  standpoint  there  is  not  a 
single  accurate  scientific  definition  in  the  whole  of  Adam 
Smith's  work,  yet,  both  for  the  science  of  political  econ- 
omy and  for  the  economic  policy  of  nations,  Adam  Smith 
has  done  far  more  than  any  of  his  successors.  It  would 
be  a  grave  misfortune  if,  in  striving  after  technical  cor- 
rectness and  scientific  analysis,  the  concrete  realities  of 
earlier  writers  were  neglected.  At  the  same  time 'it  must 
be  acknowledged  that,  for  other  purposes,  the  most  rigor- 
ous scientific  statement  is  requisite  ;  in  some  cases,  indeed, 
whether  we  like  it  or  not,  our  ideas  and  methods  must  be 
essentially  mathematical,  although,  it  may  be,  only  in  the 
most  general  way,  and  without  requiring  any  symbolical 
statement.  And,  as  might  be  expected,  in  the  different 
departments  of  political  economy,  different  stress  is  laid 
upon  the  different  constituent  elements  of  wealth.  In 
Consumption,  for  example,  utility,  in  Production,  labour, 


10  PRINCIPLES   OF  POLITICAL   ECONOMY. 

in  Distribution,  appropriation,  and  in  Exchange,  value, 
are,  in  turn,  of  fundamental  importance,  although  in  most 
cases  they  also  overlap,  because  the  division  into  depart- 
ments is  logical  and  hypothetical  rather  than  actual  and 
positive. 

§  4.  Political  Economy  as  a  Science.  Some  preliminary 
discussion  of  the  nature  of  political  economy  as  a  science 
seems  requisite  on  two  grounds ;  in  the  first  place  to 
I  make  clear  the  meaning  of  the  much-abused  phrase,  "  laws 
1  of  political  economy,"  and,  secondly,  to  point  out  what 
methods  are  appropriate  for  the  discovery  of  these  laws. 
For  the  purpose  in  hand  it  is  convenient  to  follow  Mill 
and  divide  the  sciences  into  two  great  groups,  those, 
namely,  which  have  to  do  primarily  with  laws  of  mind, 
the  moral  or  mental  sciences  in  the  widest  sense  of  the 
terms,  and  those  which  are  primarily  concerned  with 
matter  and  only  indirectly  with  mental  phenomena,  and 
which  may,  for  contradistinction,  be  called  the  physical, 
or  natural,  sciences.  This  division  is  not  intended  to  be 
sharp  and  exclusive,  nor  is  the  object  so  much  to  make  a 
classification  as  to  bring  out  the  salient  characteristics  of 
political  economy  by  comparing  and  contrasting  it  with 
other  sciences.  The  real  distinction  between  the  two 
groups  is  found  mainly  in  the  adjustment  of  emphasis. 
Thus  psychology  itself  may  be  studied  in  some  respects 
from  the  physiological  side.  Again,  natural  philosophy 
may  treat  of  sounds  and  notes  as  vibrations  of  a  certain 
kind,  and  yet  may  be  of  service  to  the  science  of  music 
which  is  concerned  with  the  mental  phenomena  which 
correspond  to  these  physical  manifestations.  Until  re- 
cently there  was  no  question  that  political  economy  should 
be  placed  in  the  moral  or  mental  group,  and  the  reason- 
ing of  Mill  and  Cairnes  was  accepted  as  obvious  and 
conclusive.  On  this  view  political  economy  deals  with 
men  as  possessing  certain  mental  and  moral  character- 
istics ;  its  fundamental  notions  are  desire,  effort,  satisfac- 
tion—  not  matter,  motion,  energy. 


INTRODUCTION.  11 

In  certain  parts  of  the  subject,  however,  it  is  allowed 
that  physical  facts  are  of  great  importance.  Thus,  in  the 
department  of  production,  certain  general  and  even  spe- 
cial characteristics  of  the  forces  and  gifts  of  nature  demand 
investigation,  as,  for  example,  in  considering  the  relation  of 
population  to  the  food  supply,  the  conditions  favourable, 
or  the  reverse,  to  petite  culture,  the  physical  disadvantages 
of  production  on  a  large  scale  in  manufactures,  and  the 
influence  of  climate  upon  race  and  accumulation.  In  the 
other  departments,  also,  physical  facts  are  often  of  impor- 
tance, as  in  some  of  the  arguments  in  support  of  protection, 
and  again  in  the  attempt  to  discover  in  sun-spots,  or  other  ; 
natural  phenomena,  the  basis  of  inflations  and  depressions  I 
of  trade.  It  would  be  easy  to  multiply  examples,  but  in 
all  it  would  be  found  that  the  end  in  view  is  not  the  mere 
statement  of  these  physical  facts,  but  their  connexion 
with  men  as  mental  and  moral  agents.  Wealth  itself 
cannot  be  regarded  simply  as  consisting  of  things,  but 
must  always  be  considered  with  an  expressed,  or  implied, 
reference  to  human  wants.  The  practical  men  in  the  first 
half  of  this  century,  who  narrowed  the  teaching  of  Adam 
Smith  to  a  few  simple  dogmas,  in  many  cases  overlooked 
the  human  element  in  wealth. 

Recently  attempts  have  been  made,  or  rather  announced 
as  about  to  be  made,  to  connect  political  economy  with 
the  general  theory  of  evolution,  and  more  especially  with 
biology.  The  ideas  at  the  root  of  evolution  are,  no  doubt, 
capable  of  application  to  economic  problems,  especially  to 
those  which  have  to  do  with  the  progress  of  society ;  but 
apart  from  tin's  regulative  or  suggestive  function,  evolu- 
tion is  only  of  service  when  based  upon  special  evidence. 

The  rise  and  decay  of  the  guilds,  for  example,  and  of 
many  other  economic  institutions,  may  be  compared  to  the 
growth  and  degeneration  of  organisms,  and  may  be  de- 
scribed to  some  extent  in  similar  phraseology.  But  there 
is  no  general  theory  which  can  be  an  adequate,  or,  indeed, 
anything  but  a  delusive,  substitute  for  an  appeal  to  facts. 


12  PKINCIPLES  OF  POLITICAL  ECONOMY. 

Evolution  a  priori  is  nothing  better  than  a  hasty  and  easy 
anticipation  of  nature.  Again,  although  man  is  an  animal, 
and  as  such  falls  under  the  sphere  of  the  biological  sciences, 
biology  has  about  as  much  to  do  with  political  economy  as 
with  constitutional  history.  No  manipulation  of  biologi- 
cal ideas  and  phrases  can  bring  us  in  sight  of  economic 
problems,  such  as  the  rate  of  interest,  the  incidence  of 
taxation,  the  level  of  prices.  Nothing  has  been  so  fatal 
to  the  progress  of  the  sciences  generally  as  the  use  of 
inappropriate  conceptions.  Medicine  made  very  slow  ad- 
vances as  a  branch  of  demonology,  and  astronomy  as  a 
branch  of  aesthetics ;  and  in  the  mental  and  moral  sciences 
to  attempt  to  express  mind  in  terms  of  matter  is  to  go 
wrong  at  the  beginning. 

The  moral  sciences  may  again  be  divided  according  as 
they  discuss  the  individual  in  isolation,  or  combinations 
of  individuals  in  societies,  though  here,  also,  the  division 
rests  mainly  upon  an  adjustment  of  emphasis.  Psychology 
may  be  taken  as  an  example  of  the  former,  though,  in  the 
treatment  of  the  emotions,  for  instance,  it  departs  in  some 
respects  from  the  individual  standpoint,  whilst  jurispru- 
dence is  placed  in  the  social  group,  though,  in  some  prob- 
lems, it  deals  mainly  with  the  individual.  It  is  easy  to 
conceive  of  a  science  of  wealth  which  would  take  the 
individual  as  central  and  discuss  the  mental  and  moral 
characteristics  involved  in  the  acquisition  and  expenditure 
of  wealth ;  but  the  term  political  implies  that  in  political 
economy  man  is  considered  as  a  member  of  a  state,  or,  at 
least,  of  an  industrial  society.  Sometimes,  no  doubt,  it  is 
convenient  to  isolate  the  individual  for  certain  purposes 
of  abstract  theory ;  but  such  isolation  is  properly  only  pre- 
liminary and  hypothetical.  The  economic  man  on  his 
desert  island  may  occasionally  be  of  service  in  this  way, 
but  it  is  generally  dangerous  to  construct .  any  social 
science  a  priori  from  the  individual.1 

1  Compare  the  criticism  of  recent  developments  of  the  theory  of 
utility.  Infra,  Bk.  I.,  Ch.  III. 


INTRODUCTION.  13 

At  this  point  the  question  naturally  arises :    Can  we 
treat  of  one  department  of  social  science  apart  from  the  ! 
rest,  and  can  political  economy  exist  apart  from  general  •' 
sociology?      It  is,  no  doubt,  true   that  all  the  forces  of 
society  are  in  a  constant  state  of  interaction ;  the  system 
of  government,  the  standard  of  morality,  the  condition  of 
the  fine  arts,  religion  and  superstition,  all  operate  on  eco- 
nomic facts.    Economic  history  furnishes  endless  examples 
of  the  injurious  effects  of  bad  government,  low  morality 
and  intolerant  or  debased  religion.     But  every  one  knows  , 
that  a  debased  religion  is  one  thing  and  a  debased  currency  \ 
another,  or  more  generally,  that  the  domain  of  economic 
history  can  be  separated  from  the  history  of  the  constitu- 
tion, of  law,  of  morals,  and  of  the  church,  though  all  have 
an  economic  side.     The  simple  truth  is,  that  whilst  there 
are  a  number  of  social  sciences  which  have  attained  a  high 
degree  of  development,  both  from  the  historical  and  the 
theoretical  point  of  view,  general  sociology  is  best  described 
as  an  aspiration. 

The  economist  regards  man  as  a  being  who  produces, 
distributes,  exchanges,  and  consumes  wealth,  and  considers 
him  as  a  member  of  a  society,  one  of  the  objects  of  which 
is  to  deal  with  wealth.  This  is  not  the  only  object  of 
political  union,  but  it  is  sufficiently  important  to  be  studied 
separately.  No  economist  imagines  that  wealth  can  be 
treated  quite  independently  of  other  social  phenomena; 
but  he  is  in  no  worse  position  than  any  other  man  of 
science ;  in  the  actual  world  we  get  no  complete  isolation. 
"N<>  science,"  according  to  Bastiat,  who  was,  it  is  true, 
more  celebrated  for  observing  harmonies  than  differences, 
"  has  natural  and  unalterable  boundaries.  In  the  domain 
of  ideas,  as  in  the  domain  of  facts,  all  things  are  bound  up 
and  linked  together ;  truths  run  into  one  another,  and  there 
is  no  science  which  in  order  to  be  complete  might  not  be 
made  to  include  all.  It  has  been  said  with  reason  that  to 
an  infinite  intelligence  there  is  but  one  single  verity ;  it  is 
our  weakness  which  obliges  us  to  study  separately  a  cer- 


14  PRINCIPLES   OF   POLITICAL   ECONOMY. 

tain  order  of  phenomena."  Accordingly  the  economist 
fixes  his  attention  on  wealth,  and  only  considers  other 
social  factors  as  far  as  they  appreciably  affect  wealth : 
as  in  every  other  science  minor  causes  are  neglected. 

Just  as  according  to  the  traditional  English  view  politi- 
cal economy  is  not  to  be  subsumed  under  sociology,  neither 

(  is  it  to  be  conjoined  with  ethics.  In  my  opinion  one  of 
the  greatest  merits  of  the  old  English  school  is  the  sharp 

I  distinction  drawn  between  economic  laws  and  moral  ideals. 
Political  economy  on  this  view  classifies  and  explains  cer- 
tain social  facts,  and  discovers  their  laws  and  relations,  just 
as  the  natural  sciences  deal  with  phenomena  of  a  different 
order.  Thus,  starting  with  private  property  and  freedom 
ipf  competition  as  existing  facts,  we  may  discover  certain 
laws  of  rent,  profits,  and  wages ;  but  whether  this  distribu- 
tion of  the  nation's  wealth  is  morally  just  or  unjust  is  rele- 
gated, together  with  the  question  wherein  justice  consists, 
to  ethics.  It  is,  no  doubt,  part  of  the  business  of  political 
economy  to  estimate  the  influence  and  the  powers  of  gov- 
ernments in  altering  this  hypothetical  distribution ;  it  is 
within  its  sphere  to  point  out  the  objects  governments 
have  had  in  view  in  the  past,  or  still  have  in  the  present, 
in  making  laws  and  regulations  affecting  wealth ;  it  may 
estimate  how  far  these  objects  have  been  attained  and  the 
difficulties  in  the  way  of  their  attainment ;  and  similarly 
it  may  deal  with  the  functions  of  various  industrial  bodies, 
such  as  agricultural  communities,  trade-unions,  and  paro- 
chial and  municipal  authorities.  But  all  the  time  we 
are  in  the  domain  of  facts;  we  are  discussing  how  wealth 
is  affected  by  various  forms  of  organisation,  restraining 
and  modifying  self-interest  and  competition. 

We  may  even  go  further  without  losing  sight  of  the 
positive  character  of  the  science.  We  may  pass  from  the 
present  to  the  future,  and  consider  the  consequences  and 
effects  of  various  changes  proposed  as  regards  wealth ; 
we  may  examine  the  real  meaning  of  these  proposals,  and 
the  adaptability  of  the  means  suggested  to  the  ends  desired. 


INTRODUCTION.  15 

But  we  are  still  dealing  with  facts  in  so  far  as  we  con- 
sider these  opinions  and  proposals  as  possible  reforms. 
Opinion,  we  must  remember,  especially  in  matters  of  dis- 
tribution, has  real  force  ;  the  opinion  of  the  multitude  on 
a  mathematical  problem  is  a  very  different  thing  from 
its  opinion  on  a  question  of  practical  politics.  There 
is  room  in  political  economy  for  a  chapter  on  Utopias, 
although  it  would  be  well  to  follow  the  example  of  Adam 
Smith,  and  give  more  attention  to  the  actual  than  to  the 
ideal.1  It  may  also  be  observed  that  these  discussions  on 
Socialism  and  similar  topics  have  a  didactic  value,  in  that 
they  make  clear  by  way  of  contrast  the  meaning  of  present 
institutions  and  methods.  Those  who  have  no  idea  of 
Socialism  have  generally  an  inadequate  notion  of  private 
property. 

Beyond  this  stage,  on  the  traditional  English  lines,  the 
province  of  political  economy,  considered  as  a  science, 
does  not  extend.  At  the  same  time,  seeing  that  most 
writers  on  the  subject  are  familiar  with  ethical  systems  in 
general,  and  adherents  of  one  in  particular,  it  is  natural 
that  as  opportunity  arises,  attention  should  be  directed  to 
the  moral  side  of  economic  facts  and  institutions.  In  the 
same  way,  a  judge,  whilst  laying  down  the  positive  law 
applicable  to  any  case,  may  express  his  own  moral  approval 
or  disapprobation,  and  a  writer  on  natural  science  may 
easily  be  led  into  reflections  on  natural  theology. 

But  experience  shows  that  it  is  desirable  to  interpret 
the  laws  of  nature  and  the  laws  of  the  statute-book  with 
a  careful  avoidance  of  moral  or  theological  bias ;  and 
economic  laws  demand  an  equally  rigorous  impartiality  of 
judgment.  Whether  we  refer  to  the  interpretation  of  the 
historical  past  or  the  actual  present,  we  easily  find  examples 
of  the  danger  of  being  influenced  by  ethical  or  religious 
notions  in  the  examination  of  economic  phenomena. 

1  Compare  Adam  Smith's  treatment  of  the  Mercantilists  and  Physio- 
crats in  Bk.  IV.,  the  space  allotted  being  in  the  proportion  of  thirty  to  one. 
See,  however,  Oncken's  criticism  :  (Eurres  de  Quesnay,  Introduction. 


16  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Adam  Smith's  ideas  on  natural  theology,  in  spite  of 
his  extraordinary  command  over  facts,  led  him  to  exag- 
gerate the  benefits,  and  to  underrate  the  disadvantages,  of 
the  system  of  natural  liberty,  and  even  vitiated,  in  some 
instances,  his  historical  judgment.  In  the  case  of  his 
immediate  followers,  this  bias  in  favour  of  individual 
freedom  made  people  callous  to  the  industrial  anarchy 
which  preceded  the  factory  legislation  and  the  develop- 
ment of  trade-unions.  They  were  persuaded  that  if  things 
were  left  to  themselves,  the  best  possible  solution  would 
be  attained.  They  did  not  know  that  their  opinion  was, 
to  a  great  extent,  a  superstition  based  upon  an  optimistic 
system  of  natural  theology.  But  a  superstition,  the  origin 
of  which  is  lost,  is  generally  doomed  to  decay,  and  at 
present  the  ideal  of  maximum  freedom  has  fallen  into 
disfavour.  We  seem,  indeed,  to  be  rapidly  adopting  the 
presumption  that  individuals,  if  left  to  themselves,  are 
capable  of  everything  bad,  and  that  government  manage- 
ment is  capable  of  everything  good.  The  suspicion  is 
gaining  ground  that  competition  is  an  evil  which  must  be 
met  at  every  point  by  organisation. 

The  principle  of  the  '  greatest  happiness  of  the  greatest 
number'  having  lost  touch  with  the  'invisible  hand,'1  by 
which,  on  Adam  Smith's  view,  the  individual  was  'led  to 
promote  an  end  which  was  no  part  of  his  intention,'  now 
seeks  support  in  the  visible  hand  of  popular  government, 
and  literally  the  vox  populi  is  being  substituted  for  the  vox 
dei.  'tw  -irH' s*K&rC&&irvL£_,  . 

On  a  question  of  this  kind  there  is  no  final  appeal  either 
to  principles  or  authority;  every  writer  must  choose\for 
himself  the  quantity  and  quality  of  the  moral  reflections 
which  he  deems  most  suitable  for  illustration,  ornament, 
or  instruction.  It  is  sufficient  to  say  that  for  the  purposes 
of  this  treatise  political  economy  is  regarded  as  a  positive 
science,  the  object  of  which  is  to  unfold  principles,  to  dis- 
cover uniformities,  and  to  trace  causal  connexions,  and  not 
1  P.  199,  MTulloch's  edition. 


INTRODUCTION.  17 

to  lay  down  precepts,  set  up  ideals,  or  pronounce  moral 
judgments.  On  this  view  the  connexion  of  political  econ- 
omy with  practice  is  extremely  variable  according  to  the 
nature  of  the  subject.  In  other  words  the  laws  of  political 
economy  may  be  divided  for  practical  purposes  into  several 
distinct  species.  There  are  some,  such  as  the  law  of 
diminishing  return  to  land  in  its  simplest  form,  which 
partake,  as  Mill  said,  of  the  character  of  physical  laws.  No 
amount  of  ardour  and  self-sacrifice  can  enable  a  limited 
area  of  land,  with  a  certain  system  of  agriculture,  to  sup- 
port more  than  a  certain  number  of  people ;  and  we  still 
find  in  the  world  some  examples  of  famines,  and  many  of 
agrarian  pauperism.  There  are  other  economic  laws  which, 
to  a  great  extent,  depend  upon  human  institution,  and  may 
be  counteracted,  or  modified,  by  human  agency.  Such,  in 
the  main,  are  the  laws  of  the  distribution  of  wealth, 
although,  as  will  appear  subsequently,  even  in  this  case 
the  arbitrary  and  optional  element  as  a  matter  of  fact  is 
not  so  preponderant  as  might  at  first  sight  appear.  There 
are  other  laws  which  are  properly  hypothetical ;  that  is  to 
say,  given  certain  conditions  certain  results  follow.  Thus 
to  assert  that  successive  issues  of  inconvertible  paper, 
other  things  remaining  the  same,  will  lead  to  an  inflation 
of  prices,  is  as  true  as  to  say  that  successive  applications 
of  heat  will  expand  metals.  In  either  case  counteracting 
causes  may  intervene,  but  practically  that  amounts  to  a 
change  in  the  conditions.  There  are  also  economic  laws 
which  are  simply  generalisations  founded  on  observed 
facts,  and  are  merely  explanations  of  past  or  present  condi- 
tions. In  these  cases  the  «practical  application  will  depend 
upon  the  usual  requirements  necessary  for  the  extension  in 
place  or  time  of  empirical  laws.1  Take,  for  example,  the 
generalisations  as  regards  the  results  of  various  systems  of 
land  tenure. 

It  only  remains  to  add,  that  to  speak  vaguely  of  any 
proposal,  as  contrary  to  the  laws  of  political  economy,  is 
1  Cf.  Mill's  Logic,  Bk.  III.,  Ch.  XVI. 


18  PRINCIPLES  OF  POLITICAL  ECONOMY. 

necessarily  ambiguous,  and  the  condemnation  has  no  value 
until  the  ambiguity  has  been  removed.  Laws  of  political 
economy,  in  the  popular  sense  of  the  term,  vary  in  force 
from  the  laws  of  nature  to  the  opinions  of  dead  men. 

§  5.  The  Methods  of  Political  Economy.  The  methods 
of  political  economy  are  closely  connected  with  the  view 
taken  of  the  subject-matter,  and  as  the  result  of  a  pro- 
longed controversy  between  rival  schools,  it  may  now 
happily  be  taken  for  granted  that  we  ought  to  adopt 
different  methods  according  to  the  particular  problem,  or 
department,  under  discussion.  Speaking  broadly  these 
methods  may  be  divided  into  two  great  groups,  different 
names  being  employed  according  to  the  stress  laid  on  cer- 
( tain  special  characteristics.  The  most  general  opposition 
is  implied  in  the  terms  deductive  and  inductive.  In  the 
deductive  method  we  start  with  certain  general  principles 
either  axiomatic,  or  derived  from  other  sciences ;  we  deduce, 
or  draw  out,  particular  laws ;  and,  in  order  not  to  be  left  in 
the  land  of  hypotheses,  we  add  the  process  of  verification 
with  the  view  to  the  discovery  of  any  disturbing  causes. 
The  great  advantage  of  this  method  is  found  in  the  com- 
plexity of  social  phenomena,  and  in  the  difficulty  of  making 
experiments.  A  good  example  is  furnished  by  the  theory 
of  money  and  prices.  It  would  be  manifestly  hopeless  to 
begin  with  a  collection  of  tables  of  prices  —  the  greater 
the  accumulation  the  greater  would  be  the  confusion. 
Before  we  can  arrange  the  facts  we  must  have  certain 
guiding  principles.  We  may  assume,  for  example,  that 
given  certain  conditions,  and  certain  modes  of  dealing  with 
money  and  goods,  the  range  of  prices  will  vary  with  the 
quantity  of  standard  money.  With  this  as  a  provisional 
hypothesis,  we  may  refer  to  the  broad  facts  of  monetary 
history,  and  thus  be  led  to  discover  a  number  of  supple- 
mentary, counteracting,  or  disturbing  causes.  It  may 
happen,  indeed,  that  some  of  these  causes  are  of  greater 
importance  than  the  original  principle ;  but  the  fact  still 
remains  that  a  working  hypothesis  of  some  kind  is  re- 


INTRODUCTION.  19 

quired.  The  great  danger  of  the  deductive  method  lies 
in  the  natural  aversion  to  the  labour  of -verification.  When 
a  principle  appears  to  be  obviously  true  the  exponent  is 
apt  to  consider  that  one  illustration  is  sufficient,  the  illus- 
tration itself  often  being  hypothetical.  Another  danger  is 
that  sufficient  attention  may  not  be  given  to  the  selection 
of  principles,  and  that  especially  with  the  aid  of  mathe- 
matics these  principles  may  be  elaborated  beyond  the 
possibility  of  practical  application.  At  the  same  time, 
however,  it  must  be  remembered  that  in  all  the  deductive 
sciences  advances  have  been  often  made  without  reference 
to  narrow  views  of  utility,  and  yet  in  the  end  these 
advances  have  been  of  great  practical  value.  Political 
economy  is  certainly  indebted  to  some  of  the  labours  of 
mathematicians  which  for  a  time  were  neglected  as  curious 
and  visionary.1 

In  the  inductive  method  we  are  supposed  to  start  with 
particular  facts  and  ascend  to  general  principles.  Here 
the  danger  is  that  the  facts  are  accumulated  without  any 
rational  system  of  classification,  and  that  we  never  get 
beyond  a  collection  of  materials.  Hitherto,  however,  it 
must  be  confessed  that  in  political  economy  this  danger 
has  not  received  any  conspicuous  illustration,  and  in  most 
cases  when  induction  has  been  attempted  the  result  has 
been  of  theoretical,  as  well  as  of  practical,  importance. 
This  is  especially  true  of  those  forms  of  induction  usually 
styled  historical  and  comparative.  Even  the  Annals  of 
Commerce  of  Anderson  and  Macpherson,  although  the 
method  of  arrangement  is  merely  chronological,  have  borne 
good  fruit,  and  the  works  of  Thorold  Rogers,  although  his 
guiding  principles  were  too  often  taken  from  an  extreme 
form  of  current  politics,  are  of  the  highest  value.  The 
attention  which  has  been  recently  bestowed  upon  eco- 
nomic history,  as  will  be  shown  by  numerous  examples  in 
the  course  of  this  work,  has  led  to  important  modifications 

1  See  the  interesting  and  pathetic  preface  to  Cournot's  Revue  Som- 
maire. 


20  PRINCIPLES  OF  POLITICAL  ECONOMY. 

of  previously  accepted  theories.  It  must  be  observed,  how- 
ever, that  the  field  of  economic  history  is  far  too  wide  to 
be  included  in  a  survey  of  principles.  An  attempt  to  intro- 
duce at  every  point  the  corresponding  history,  even  of  one 
country,  could  only  lead  to  confusion. 

In  conclusion1  the  reader  may  be  warned  that  in  the 
study  of  political  economy  he  will  meet  with  difficulties 
of  various  kinds.  The  analysis  of  complex  conceptions, 
the  definition  of  terms,  and  the  statement  of  abstract  prin- 
ciples, will  demand  at  one  time  the  kind  of  intellectual 
strain  that  is  required  in  mathematics  or  analytical  juris- 
prudence, whilst  at  another  time  it  will  be  necessary  to 
consider  and  balance  a  reasoned  classification  of  a  number 
of  details  drawn  from  history  and  statistics. 

1  Compare  for  more  elaborate  treatment  of  the  whole  subject  of  this 
chapter,  Scope  and  Method  of  Political  Economy,  by  Dr.  Keynes. 


BOOK   I. 

PRODUCTION. 


CHAPTER  I. 

UTILITY. 

§  1.  Meaning  of  Utility.  In  the  introductory  chapter 
it  was  pointed  out  that  even  material  wealth  cannot  be 
regarded  simply  as  consisting  of  '  things,'  but  must  always 
be  considered  with  an  expressed  or  implied  reference  to, 
human  wants.  A  term  is  needed  to  call  attention  to  this 
ever-present  human  element  in  economic  phenomena,  and 
the  practice  of  economists  has  fixed  upon  utility  as  best 
conveying  the  meaning.  Utility  in  this  sense  indicates 
"  the  capacity  to  satisfy  a  desire  or  serve  a  purpose."  It 
is  thus  the  widest  conception  in  political  economy,  and  as 
it  will  be  constantly  referred  to,  requires  careful  investi- 
gation at  the  outset. 

It  will  be  observed  that  the  definition  as  given  is  much 
more  extensive  than  the  popular  signification  would  sug- 
gest. 

In  common  thought,  useful  is  often  opposed  to  orna- 
mental, and  thus  utility,  the  corresponding  substantive, 
might  be  supposed  to  be  only  applied  to  things  which  are 
instrumental  in  rendering  the  more  solid  and  important 
services.  But  in  political  economy  a  thing,  which  in  ordi- 
nary language  might  be  spoken  of  as  useless  in  itself,1 
possesses  utility  if  it  serves  any  purpose  whatever. 

The  definition  of  utility  here  adopted  requires  also  to  be 
distinguished  from  that  which  is  the  basis  of  the  utilitarian 
system  of  ethics.  It  is  true  that  many  economists  under 
the  influence  of  this  system  have  assumed  that  the  satis- 

i  Of.  Mill,  p.  5. 
23 


f.^jU  t(t 


24  PRINCIPLES  OF  POLITICAL  ECONOMY. 

faction  afforded  by  utility  will  always  consist  in  increasing 
pleasure  or  alleviating  pain.  But  in  the  view  taken  in 
the  present  work  of  the  relation  of  political  economy  to 
ethics  this  assumption  is  unwarranted  and  misleading.  It 
is  worth  recalling  that  Bentham  himself  admitted  that 
utility,  in  this  narrow  sense,  was  an  unfortunately  chosen 
word,1  and  it  certainly  ought  not  to  bear  this  restricted 
and  peculiar  meaning  in  economic  reasoning  ;  for  it  cannot 
be  said,  without  begging  the  answer  to  a  most  difficult  and 
disputed  psychological  question,  that  even  in  the  produc- 
tion and  consumption  of  wealth  men  are  actuated  simply 
by  considerations  of  pleasure  and  pain.  What  is  called, 
for  example,  the  effective  desire  of  accumulation  consists 
of  a  group  of  motives  which  we  have  no  right  to  assume 

J^- 

are  purely  hedonistic,  just  as  we  ought  not  to  suppose  that 
•people  are  honest  merely  because  it  is  the  best  policy. 
Still  less  in  the  distribution  of  wealth  amongst  the  differ- 
ent classes  and  members  of  a  society  are  we  justified  in 
taking  for  granted  a  particular  system  of  moral  philos- 
ophy. The  institution  of  private  property  may  or  may 
not  afford  the  greatest  happiness  to  the  greatest  number, 
but  it  is  certainly  not  necessary  in  political  economy  to 
treat  private  property  only  from  that  point  of  view.  Mill, 
for  example,  in  comparing  the  relative  merits  of  Socialism 
and  Individualism  says  that  "  if  a  conjecture  may  be 
hazarded,  the  decision  will  probably  depend  mainly  on  one 
consideration  ;  viz.,  which  of  the  two  systems  is  consistent 
with  the  greatest  amount  of  human  liberty  and  sponta- 
neity." 2  Whether  maximum  liberty  would  necessarily 
lead  to  maximum  happiness,  it  is  beyond  the  domain  of 
political  economy  to  determine  ;  from  the  economic  stand- 
point utility  must  be  regarded  as  morally  colourless. 

1  "  Utility  was  an  unfortunately  chosen  word.  The  idea  it  gives  is  a 
vague  one.  Dumont  insists  on  retaining  the  word.  He  is  bigoted,  old, 
and  indisposed  to  adopt  what  is  new,  even  though  it  should  be  better."  — 
Bentham's  Conversations,  Works,  Vol.  X.,  p.  682. 

8  Principles,  Bk.  II.,  Ch.  I.,  §  3. 


PRODUCTION.  25 

The  danger  involved  in  restricting  the  meaning  of 
utility  to  pleasure  and  pain  is  well  illustrated  by  the 
following  passage  from  Jevons,  who  more  than  any  one 
professes  to  make  utility  the  basis  of  economics.  "  My 
present  purpose,"  he  writes  at  the  conclusion  of  his  chap- 
ter on  the  relation  of  political  economy  to  moral  philoso- 
phy, "is  accomplished  in  pointing  out  this  hierarchy  of 
feeling  and  assigning  a  proper  place  to  the  pleasures  and 
pains  with  which  economy  deals.  It  is  the  lowest  rank  of 
feelings  which  we  here  treat.  The  calculus  of  utility  aims 
at  supplying  the  ordinary  wants  of  man  at  the  least  cost  of 
labour."  * 

On  this  view  not  only  is  utility  reduced  to  a  balance  of  j 
pleasure  and  pain,  but  economic  utility  is  confined  to  the  f 
lowest  rank. 

A  little  reflection,  however,  will  show  that  this  division 
into  higher  and  lower  is  purely  arbitrary,  and  receives  no 
sanction  from  the  writings  of  the  most  eminent  economists. 
Adam  Smith,  for  example,  discussed  the  economy  of  sup- 
plying the  wants  of  a  nation  in  defence,  justice,  education, 
and  religion.2  Mill  again  observes :  "  After  the  means  of 
subsistence  are  assured,  the  next  in  strength  of  the  personal 
wants  of  human  beings  is  liberty ;  and  unlike  the  physical 
wants  which  as  civilisation  advances  become  more  moder- 
ate and  more  amenable  to  control,  it  increases  instead  of 
diminishing  in  intensity  as  the  intelligence  and  the  moral 
faculties  are  more  developed." 

The  popular  hostility  to  political  economy  and  the  pre- 
vailing notion,  as  exemplified  in  the  writings  of  Mr.  Rus- 
kin,  that  it  is  essentially  immoral  are  largely  due  to  the 
assumption  that  economists  only  deal  with  motives  of  the 
lowest  rank.  Take,  for  example,  Mr.  Ruskin's  description 
of  the  teaching  of  the  modern  political  economist:  "As 
no  laws  but  those  of  the  devil  are  practicable  in  the  world, 

1  Similarly  Professor  Marshall  speaks  of  political  economy  as  dealing 
with  the  '  ordinary  business  of  life.' 

2  \Vealth  of  Nations,  Bk.  V. 


26  PRINCIPLES  OF  POLITICAL  ECONOMY. 

so  no  impulses  but  those  of  the  brute  (says  the  modern 
political  economist)  are  applicable  in  the  world.  Faith, 
generosity,  honesty,  zeal,  and  self-sacrifice  are  poetical 
phrases.  None  of  these  things  can,  in  reality,  be  counted 
upon ;  there  is  no  truth  in  man  which  can  be  used  as  a 
moving  or  productive  power.  All  motive  force  in  him  is 
essentially  brutish,  covetous,  or  contentious.  His  power 
is  only  power  of  prey:  otherwise  than  as  the  spider  he 
cannot  design;  otherwise  than  as  the  tiger  he  cannot 
feed." 1  It  is  needless  to  say  that  this  opinion  is  not  sup- 
ported by  quotations  from  any  economist  of  repute. 

§  2.  Economic  Utility.  If,  however,  the  term  utility 
is  to  be  used  in  the  wide  sense  indicated  by  the  definition 
just  given,  it  is  plain  that  political  economy  can  only  deal 
either  with  certain  kinds  of  utilities,  or  with  utility  in 
general  in  certain  aspects.  Now  economic  utilities,  it  is 
generally  admitted,  are  distinguished  by  three  charac- 
teristics :  they  are  the  result  of  labour,  they  are  appropri- 
ated, and  they  are  exchangeable.  Labour,  property,  value, 
are  in  succession  of  fundamental  importance  in  produc- 
tion, distribution,  and  exchange  respectively,  and  will 
require  careful  analysis  subsequently.  In  the  meantime, 
however,  a  sufficient  account  must  be  given  to  throw  light 
on  the  nature  of  economic  utility.  Labour,  then,  may  be 
simply  muscular  and  almost  automatic,  or  it  may  involve 
the  highest  strain  on  the  intellectual  and  moral  faculties ; 
the  distinction  turns  not  on  the  quality  of  the  labour 
(whether  higher  or  lower),  but  upon  its  association  in 
general  with  the  other  two  characteristics  noted.  Thus 
many  forms  of  sport  require  severe  muscular  exertion  and 
considerable  technical  skill ;  but  labour  of  this  kind  is  not 
economic  (except  indirectly),  because  the  results  are  in 
general  capable  neither  of  appropriation  nor  of  exchange. 

1  Selections  from  the  Writings  of  John  Buskin,  p.  372.  Contrast  with 
this  passage  the  treatment  of  Economic  Motives  by  Dr.  Keynes  (Scope 
and  Method  of  Political  Economy}.  See,  also,  Professor  Marshall's 
Principles  (2d  edition),  p.  147. 


PRODUCTION.  27 

Again,  to  go  to  the  other  extreme,  many  strivings  after 
self-culture  and  religious  and  moral  ideals  involve  labour 
of  the  highest  kind  ;  but  in  this  case  also  political  economy 
has  in  general  little  to  say  except  indirectly.  In  other 
words,  there  are  various  personal  qualities  of  the  highest 
utility  to  the  possessor  which  lie  beyond  the  domain  of 
political  economy. 

On  the  other  hand,  there  are  certain  gifts  of  nature 
(notably  land)  which,  although  not  the  result  of  labour, 
form  part  of  the  economic  foundations  of  society.  In  this 
case,  however,  there  is  scope  for  appropriation  and  ex- 
change, and  in  general  these  natural  sources  require 
labour  for  their  exploitation.  If  the  gifts  of  nature, 
either  owing  to  their  abundance  or  their  character,  are 
exempt  from  appropriation  and  cannot  be  exchanged,  they 
also  claim  little  attention  from  the  economist  except  indi- 
rectly. They  are  not,  however,  altogether  excluded,  be- 
cause, as,  for  example,  in  the  case  of  climatic  influences, 
they  are  often  closely  associated  with  economic  utilities 
proper. 

Of  appropriation,  as  characteristic  of  economic  utilities, 
it  is  not  necessary  at  this  stage  to  say  more  than  is  implied 
in  common  thought.  It  may,  however,  be  well  to  observe 
that  the  conception  is  not  limited  to  the  private  property 
of  individuals.  In  all  communities  many  important  eco- 
nomic utilities,  or  forms  of  wealth,  have  been  appropriated 
by  the  state  or  by  various  local  bodies.  Again,  from  the 
economic  standpoint,  it  is  often  convenient  to  regard  skill 
and  other  qualities  of  labour,  even  when  labour  is  free, 
as  capable  of  appropriation.1  , 

The  third  characteristic  of  economic  utilities,  namely, 
value,  is  encrusted  with  difficulties.  Most  English  econo- 
mists, since  Adam  Smith,  have  abandoned  the  expressions 
"  value  in  use  "  and  "  intrinsic  value  "  as  meaning  on 

1  Just  as  rent  may  be  regarded  as  the  sale  of  the  use  of  land  for  a  time, 
the  payment  being  by  instalments,  —  so  of  labour  and  wages.  Cf. 
Maine's  Village  Communities,  pp.  189,  190. 


28  PRINCIPLES  OF  POLITICAL   ECONOMY. 

analysis  no  more  than  utility,  and  they  have  accordingly 
confined  the  term  "  value  "  to  "  exchange  value."  Now 
it  is  plain  that  exchange  necessarily  involves  two  terms  at 
least ;  that  is  to  say,  we  can  only  express  the  exchange 
value  of  one  thing  in  relation  to  one  or  more  other  things. 

In  early,  or  rather  hypothetical,  stages  of  society,  when 
barter  is  assumed  to  be  the  rule,  we  may  suppose  that  a 
person  anxious  to  sell  an  ox,  or  an  ass,  offers  it  for  so  many 
sheep  or  women,  or  other  forms  of  primitive  wealth ;  that 
is  to  say,  he  offers  a  series  of  alternatives  in  the  matter 
of  payment.  But  in  modern,  and  we  may  say  in  histori- 
cal,1 societies  a  standard  of  comparison  has  been  adopted ; 
and  when  we  speak  simply  of  the  exchange  value  of  a 
thing,  the  correlative  term  is  "  money."  2  Thus  value  be- 
comes price.  It  is  with  utilities  that  have  a  price  that 
political  economy  is  mainly  concerned,  and  it  is  princi- 
pally owing  to  the  possibility  of  accurate  measurement 
thereby  introduced,  that  the  advance  of  political  economy 
as  an  exact  science  —  that  is  to  say,  as  distinct  from  a  col- 
lection of  empirical  truths  —  is  to  be  attributed.  "  Every 
science,"  says  Clerk  Maxwell,  "has  some  instrument  of 
precision  which  may  be  taken  as  the  material  type  of  that 
science  which  it  has  advanced,  by  enabling  observers  to 
express  their  results  as  measured  quantities.  In  astronomy 
we  have  the  divided  circle ;  in  chemistry,  the  balance ;  in 
heat,  the  thermometer ;  while  the  whole  system  of  civilised 
life  may  be  fitly  symbolised  by  a  foot-rule,  a  set  of  weights, 
and  a  clock."  To  these  symbols  the  economist  can  justly 
claim  that  a  piece  of  standard  money  should  be  added. 

Money  is  not  only  of  practical  use  in  the  measurement 
and  exchange  of  wealth,  but  is  of  fundamental  importance 
in  economic  theory.  At  a  later  stage  the  theory  of  money 

1  For  the  very  early  and  general  adoption  of  some  monetaiy  standard, 
see  Professor  Ridgeway's  learned  and  interesting  work,  Origin  of  Cur- 
rency and  Weight  Standards. 

3  "Money"  is  not  necessarily  gold  or  silver,  or  even  metallic.  For 
the  present,  we  may  say  with  Professor  Walker,  "  Money  is  that  money 
does."  —  Money,  p.  405. 


PRODUCTION.  29 

and  prices  will  require  special  and  detailed  examination, 
but  for  the  present  it  will  be  assumed  that,  under  any 
given  conditions,  the  general  purchasing  power  of  money 
is  constant.  In  other  words,  the  general  level  of  prices 
will  be  considered  stable  relatively  to  any  change  in  the 
particular  price  of  some  particular  commodity  or  service. 
This  assumption  is  perfectly  legitimate,  when  we  wish 
to  investigate  the  value  of  one  thing  compared  with 
"  things  in  general,"  because,  if  the  relative  values  of  all 
other  things  (including  money)  are  assumed  to  remain 
unchanged,  we  may  say  that  general  prices  are  unchanged. 
Again,  the  effect  of  a  movement  in  the  price  of  one  com- 
modity upon  the  general  average  of  an  indefinite  number 
may  be  neglected.  In  certain  inquiries,  however,  as  for 
example,  in  estimating  the  accumulation  of  wealth  over  a 
considerable  period,  it  may  be  absolutely  necessary  to  make 
due  allowance  for  any  change  in  the  value  of  money  itself 
as  shown  in  general  movements  of  prices. 

To  resume  :  the  utilities  with  which  political  economy 
deals  have  in  general  three  distinctive  marks  —  labour, 
appropriation,  and  exchange-value.  Thus,  on  the  one  side, 
we  exclude  the  so-called  inner  personal  qualities,  the  en- 
joyment of  which  cannot  be  separated  from  the  individual, 
and,  on  the  other,  the  so-called  outer  free  utilities  which 
owing  to  their  abundance  or  nature  cannot  or  need  not 
be  economised.1 

It  is  plain  that  economic  utilities  (even  when  thus 
restricted),  corresponding  as  they  do  to  an  infinite  variety 
of  human  wants,  may  for  different  purposes  be  classified 
in  a  great  many  different  ways.  As  one  of  the  best  known 
examples,  we  may  take  the  division  adopted  by  Mill,2 
viz. :  —  1,  Utilities  fixed  and  embodied  in  outward  objects ; 
2,  those  fixed  and  embodied  in  human  beings ;  3,  those 
not  fixed  or  embodied  in  any  object,  but  consisting  in  a 

1  See  Dr.  Smart's  Introduction  to  the  Theory  of  Value,  p.  17,  for  an 
explanation  of  this  use  of  "  economise." 

2  Principles,  Bk  I.,  Ch.  III.,  §  2. 


30  PRINCIPLES  OF  POLITICAL  ECONOMY. 

mere  service  rendered.  This  classification,  however,  is 
open  to  the  criticism  that  it  is  based  upon  two  different 
principles.  The  distinction  between  the  first  two  classes 
rests  upon  the  legal  and  natural  division  between  things 
and  persons ;  but  in  the  third  class  the  differential  charac- 
teristic is  found  in  the  fact  that  '  the  services  only  exist 
whilst  being  performed,  and  the  pleasures  while  being 
enjoyed.' 

It  cannot,  however,  be  too  often  insisted  on  that  utility 
is  a  relative  term,  and  has  no  meaning  without  reference 
expressed  or  implied  to  the  satisfaction  of  human  wants. 
A  natural  outward  object  has  no  utility  in  itself ;  like 
human  beings,  it  can  only  render  services  or  give  pleasures 
which  perish  in  the  act.  If,  then,  it  is  thought  desirable 
to  distinguish  between  the  durable  qualities  of  persons, 
and  the  fleeting  services  which  from  time  to  time  they 
render,  we  ought  also  to  distinguish  between  the  qualities 
of  things  and  the  pleasures  which  they  similarly  furnish 
from  time  to  time.  In  some  parts  of  the  subject,  and 
especially  in  reference  to  Capital,  it  is  necessary  to  call 
attention  to  the  fact  that  certain  qualities  of  persons  and 
things  are  comparatively  permanent,  and  that  their  efficacy 
is  not  exhausted  by  a  single  use.  It  is  also  desirable,  in 
discussing  certain  problems,  to  distinguish  between  the 
utility  actually  derived  from  a  thing,  as,  for  example, 
mountain  scenery  from  which  the  public  are  excluded, 
and  the  potential  utility  that  might  be  derived.  But  in 
general  it  is  not  necessary  to  emphasise  the  logical  dis- 
tinction between  the  capacity  to  render  a  service  and  the 
actuality  of  performance,  whether  in  persons  or  things.1 
On  the  other  hand,  the  distinction  between  the  utilities 
afforded  by  things  and  those  afforded  by  persons  is  of 
fundamental  importance.  In  popular  usage,  the  term 
wealth  is  generally  confined  to  the  class  of  material 
things.  There  is,  however,  the  authority  of  Adam  Smith 

1  When  the  question  is  discussed  whether  skill  is  wealth,  it  is  assumed 
that  the  skill  actually  is  or  may  be  used,  and  similarly  of  commodities. 


PRODUCTION.  31 

for  including  under  the  fixed  capital  of  a  country  (and 
therefore  under  its  wealth)  the  acquired  and  useful  abili- 
ties of  its  inhabitants.  Economic  utilities,  then,  may  be 
divided  into  personal  (or  immaterial)  and  material;  and 
for  practical  purposes  it  is  often  convenient  to  substitute 
for  the  technical  expression  '  economic  utilities,'  the  more 
familiar  term  wealth,  and  to  speak  of  wealth  as  being 
either  material  or  immaterial.1 

1  For  many  years  I  was  in  the  habit  of  using  the.  classification  given 
below,  adapted  with  some  modification  from  that  of  A.  Held's  Grundriss. 

UTILITY  (as  defined  above) 

j 

Inner  or  inward  (personal)  Outer  or  outward  (non-personal) 

FREE  ECONOMIC 

II  II 

(not  the  result  of  labour,  not  Wealth  (as  defined  above) 

appropriated,  not  exchanged) | 

INCOME  =  CAPITAL  = 

(for  immediate  con-  (for  satisfaction  of 

sumption)  future  needs) 


CHAPTER  II. 

PRODUCTION. 

§  1.  Definition  of  Production.  The  controversy  as  to 
the  meaning  of  the  terms  productive  and  unproductive 
is  now  only  of  interest  as  showing  the  difficulty  there  is 
in  clearing  fundamental  conceptions  from  the  popular 
growths  with  which  they  are  entwined.  As  soon  as  it 
became  clear  that  the  terms  production  and  productive 
were  elliptical  expressions  involving  the  idea  of  a  some- 
thing produced,  and  that  the  correlative  term  was  wealth, 
the  question  became  identical  with  the  proper  definition 
of  wealth.  To  avoid  any  ambiguity  at  the  outset  for  the 
term  wealth  we  may  substitute  as  explained  in  the  last 
chapter  *  economic  utilities,'  but  after  this  preliminary  ex- 
planation, there  will  be  little  danger  in  speaking  of  imma- 
terial (or  personal)  and  material  wealth  as  the  objects  of 
production. 

There  is  nothing  to  be  gained  by  confining  the  term  pro- 
ductive to  the  production  of  material  wealth.  Man  can- 
not produce  matter  in  the  sense  of  creating  it ;  he  can  only 
adapt  it  to  his  wants  or  desires ;  that  is  to  say,  he  can  endow 
it  with  utility  of  some  kind  ;  and  in  the  process  of  adapta- 
tion he  requires  the  constant  co-operation  of  natural  forces. 
In  every  form  of  production  nature  labours  with  man ; 
this  is  equally  true  of  immaterial  as  of  material  wealth. 
The  education  of  a  child  requires  not  only  labour  on  the 
part  of  the  instructor,  but  time  must  be  allowed  for  natural 
growth.  We  may  force  education  as  we  force  plants,  but 
only  within  certain  limits. 

32 


PRODUCTION.  33 

The  objects  of  education  are,  it  is  true,  only  partly  eco- 
nomic ;  but  we  can  make  a  logical  distinction  between  those 
human  qualities,  such  as  skill  which  will  command  a 
price  and  those  of  a  purely  moral  or  religious  character, 
just  as  in  many  material  objects  we  can  distinguish  be- 
tween their  economic  and  their  artistic  qualities,  e.g.,  in 
ships,  houses,  bridges.1 

In  some  forms  of  immaterial  wealth,  the  utility  must  be 
regarded  as  embodied  not  in  one  but  in  a  number  of  indi- 
viduals —  in  a  combination  or  organisation.  A  good  ex- 
ample, though  in  some  respects  liable  to  misrepresentation, 
is  furnished  by  the  credit  institutions  of  a  country.  The 
"  money "  of  the  money  market  of  the  United  Kingdom, 
less  than  five  per  cent  of  which  is  actually  held  in  coin,  is 
an  economic  utility  of  the  first  magnitude  embracing  some 
.£600,000,000.  Broadly  speaking  this  large  sum  has  been 
accumulated  through  certain  economies  gradually  devel- 
oped in  the  organisation  of  industry.  The  result  has  only 
been  obtained  through  labour  of  a  very  high  quality  pro- 
ducing certain  effects  on  the  characters  and  habits  of  men, 
combined  with  great  improvements  in  the  means  of  com- 
munication. The  latter,  it  is  plain,  depend  not  only  on 
man's  ideas  and  morality,  but  upon  the  gifts  and  forces  of 
nature. 

§  2.  The  Production  of  Material  Wealth.  The  nature 
of  material  production  as  the  more  simple  may  be  first 
considered.  In  general  there  are  three  requisites:  Land 
and  Natural  Agents,  Labour,  and  Capital.  It  is  usual 
to  point  out,  that,  in  the  rudimentary  stages  of  society, 
land  and  natural  agents  must  have  been  of  dominant 
importance,  that  labour  must  have  consisted  mainly  in  the 
appropriation  of  the  natural  fruits  of  the  earth,  and  that 
capital  can  hardly  be  said  to  have  existed.  On  analysis, 

1  "  Another  of  the  strange  and  evil  tendencies  of  the  present  day  is  to 
the  decoration  of  the  railroad  station.  .  .  .  Will  a  single  traveller  be  will- 
ing to  pay  an  increased  fare  on  the  South  Western  because  the  columns  of 
the  terminus  are  covered  with  patterns  from  Nineveh?  "  —  RCSKIN. 


34  PRINCIPLES   OF  POLITICAL  ECONOMY. 

however,  this  account  of  the  origins  of  economic  produc- 
tion seems  to  amount  to  no  more  than  the  assumption  that 
men  were  at  one  time  a  little  lower  than  bees,  and  a  little 
higher  than  cattle  in  making  provision  for  their  wants. 
But  nothing  is  more  delusive  than  to  construct  a  priori 
primitive  societies  by  making  abstraction  of  certain  obvious 
elements  of  our  present  civilisation.  Political  economy 
has  certainly  little  to  gain  from  the  observation  of  hypo- 
thetical societies  in  which  capital  is  supposed  to  be  un- 
known or  of  no  importance. 

The  evidences  of  prehistoric  times,  as  well  as  the  most 
rudimentary  forms  of  present  day  barbarism,  show  that 
primitive  man  sought  to  aid  his  labour  by  tools,  and  to 
guard  against  his  future  wants  by  stores.  The  origin  of 
many  of  the  most  useful  arts  is  lost  in  antiquity.  At 
a  very  remote  period,  as  the  relics  of  the  tombs  show,  men 
could  work  in  stone,  and  found  leisure  to  indulge  in 
making  ornaments.  Long  before  the  invention  of  writing 
made  history  possible,  certain  races  were  far  advanced 
in  agriculture,  in  transport  by  land  and  water,  in  spinning 
and  weaving,  and  in  building.  That  is  to  say,  even  in 
prehistoric  times,  capital  in  its  most  narrow  and  obvious 
sense  of  material  wealth  devoted  to  production  was  an 
essential  element  in  production.  Nor  was  it  fundamental 
merely  in  the  sense  that  isolated  individuals  found  instru- 
ments and  stores  of  service  ;  the  capital  that  an  individual 
can  make,  or  save,  unaided  by  his  fellows  is  of  small  im- 
portance.1 It  is  only  because  the  little  increments  of 
improvement  are  communicated  and  handed  down  that 
progress  in  the  industrial  arts  is  possible.  This  again 
involves  a  certain  degree  of  security  and  association ;  and 
the  kind  of  association  is  found  to  depend  to  a  great 
extent  on  the  kind  of  material  capital,  and  on  the  state 
of  industrial  knowledge.  A  good  illustration  of  this 
position  is  to  be  found  in  the  development  of  agriculture 

1 "  Mankind  can  never  have  lived  as  a  mere  struggling  crowd  each  for 
himself."  —  Tylor's  Anthropology,  p.  402. 


PRODUCTION.  35 

as  shown  in  an  admirable  manner  by  Mr.  Seebohm,  in  his 
work  on  the  English  Village  Community.  As  a  particular 
example  we  may  take  the  description  of  the  co-aration  or 
common  ploughing  of  the  Welsh.1  The  team  for  the  great 
plough,  as  in  England  and  Scotland,  was  of  eight  oxen. 
Those  who  joined  in  this  primitive  co-operative  ploughing 
were  obliged  to  bring  a  proper  contribution  of  capital 
whether  oxen  or  irons.  The  land  ploughed  was  divided 
into  erws  (something  less  than  a  modern  acre),  and  the 
produce  of  the  partnership  was  divided  according  to  im- 
memorial custom  by  settled  rules.  "  The  first  erw  ploughed 
was  to  go  to  the  ploughman,  the  second  to  the  irons,  the 
third  to  the  outside  sod  ox,  the  fourth  to  the  outside  sward 
ox,  the  fifth  to  the  driver,  the  sixth,  seventh,  eighth,  ninth, 
tenth,  and  eleventh  to  the  other  six  oxen  in  order  of 
worth,  and  lastly,  the  twelfth  was  the  plough  erw  for 
plough-bote,  i.e.,  for  the  maintenance  of  the  wood-work 
of  the  plough."  An  occasion  will  arise  subsequently2 
for  further  reference  to  the  remarkable  consequences 
extending  down  to  the  present  century  of  the  adoption 
in  prehistoric  times  of  peculiar  methods  in  the  applica- 
tion of  capital  to  land.  It  is  sufficient,  at  present,  to  ob- 
serve that  for  many  ages  agricultural  systems  moulded 
the  conditions  of  life  of  the  great  mass  of  the  people  at 
least  as  rigorously  as  the  modern  factory  system  shapes 
the  present  conditions  of  life  of  large  classes  of  opera- 
tives. In  the  open-field  system  there  was  a  dead  level 
of  uniformity  in  the  methods  of  cultivation.  "  The  facts 
recorded  with  pen  and  ink  on  the  venerable  pages  of  the 
Domesday  Book  are  for  the  most  part  still  legible,  scored 
deeply  on  the  surface  of  the  soil  by  the  Domesday  plough. 
.  .  .  As  we  gaze  on  these  actual  acres,  roods,  and  furlongs, 
we  notice  that  they  are  seldom  straight,  but  lie  in  great 
sweeping  curves,  shaped  usually  like  a  reversed  capital 
J  or  capital  S,  the  long,  narrow  fields  of  the  present  farms 
thus  perpetuating  the  graceful  curves  of  the  acres  —  curves 
1  Vill  Comm.,  p.  121.  2  Bk.  II.,  Ch.  VI. 


36  PRINCIPLES  OF  POLITICAL  ECONOMY. 

which  can  only  be  due  to  the  twist  of  the  great  eight-ox 
plough  as  the  leading  oxen  were  pulled  round,  in  prepara- 
tion for  the  turn  as  they  approached  the  end  of  the  furlong, 
by  the  villein  at  the  near  side  of"  the  leading  ox.  Thus 
the  acre  strips,  which  were  originally  straight,  were  bent 
round  in  the  course  of  centuries  of  continuous  ploughing, 
the  curvature  being  increased  every  year  by  an  inch  or 
two  of  further  deviation,  till  at  length  the  extremities  of 
the  furlong  became  shifted  several  feet  from  their  original 
position." 1  It  is  no  exaggeration  to  say  that  this  system 
has  left  an  impress  upon  the  land  itself,  which  is  almost 
geological  in  character.  We  can  see  its  traces  still  in  the 
terraced  slopes  of  hills,  in  the  peculiar  shapes  of  our  pres- 
ent fields  and  closes,  and  in  the  direction  of  our  country 
lanes,  that  '  meander  hither  and  thither,  taking  curious 
rectangular  turns,  as  if  round  the  squares  of  a  chess- 
board.' 

It  would  be  easy  to  accumulate  evidence  in  proof  of 
the  position  that,  leaving  out  of  account  the  hypothetical 
origin  of  mankind,  and  taking  the  actual  progress  of  civili- 
sation, capital  has,  from  the  earliest  times,  been  one  of  the 
requisites  of  material  production.  It  may  be  said  that 
capital  is  itself  the  result  of  labour  and  nature,  and,  there- 
fore, not  fundamental ;  it  would,  however,  be  equally  true 
to  say  that  labour  is  originally  the  result  of  nature,  and 
thus  to  argue  that  nature  alone  is  a  primary  requisite. 

We  find  that  historically,  as  shown  by  the  shifting  tribal 
households,  capital  emerged  long  before  the  appropriation 
of  land.  Even  so  late  as  the  Domesday  survey  in  England, 
it  is  probable  that  it  was  rather  the  possession  of  oxen  for 
tillage  than  of  land  itself  which  constituted  wealth,  and  that, 
accordingly,  the  system  of  taxation  recorded  in  Domesday 
was  based  on  the  number  of  ploughs  rather  than  on  the 
number  of  acres.2  Again,  in  the  thirteenth  century,  accord- 

1  Domesday  Survivals,  by  Canon  Isaac  Taylor,  in  Domesday  Studies, 
Vol.  L,  p.  60. 

2  Domesday  Studies,  Vol.  I.,  p.  52. 


PRODUCTION.  37 

ing  to  Thorold  Rogers,  on  ordinary  arable  land,  stock  was 
three  times  the  value  of  the  land,  when  adequate  stock  and 
farm  implements  were  kept  upon  the  land.1 

It  is  difficult  to  get  rid  of  the  idea  that  in  the  produc- 
tion 2  of  material  wealth  there  is  something  in  the  nature 
of  a  creative  process.  It  may,  then,  be  advantageous  to 
give  an  example  in  which  this  false  suggestion  is  not 
present.  Such  is  the  case,  for  instance,  with  transport,  the 
object  of  which  is  to  put  into  things  the  utility  of  being 
in  the  place  where  they  are  wanted.  The  same  idea  is 
sometimes  expressed  by  saying  that  the  act  of  production 
is  not  complete  until  the  commodity  is  in  the  hands  of  the 
consumer.  Accordingly  in  a  modern  society  the  toilers 
on  the  sea,  the  railroad,  and  the  highway ;  those  who  by 
the  telegraph,  the  postal  service,  and  the  newspaper  assist 
in  the  organisation  of  industry;  the  wholesale  merchant, 
the  retail  shop-keeper,  and  the  errand-boy,  —  all  these  are 
as  much  engaged  in  the  production  of  material  wealth  as 
the  labourers  on  a  farm,  or  the  miners  in  a  coal-pit.  Just 
as  matter  in  the  wrong  place  is  dirt,  so  wealth  in  the  wrong 
place  is  waste. 

§  3.  Production  of  Personal  or  Immaterial  Wealth.  It 
is  admitted  that  economic  terms  are  in  general  incapable 
of  precise  and  rigid  definition,  and  that  a  debatable  margin 
must  be  left  between  economic  species.  Such  is  the  case 
with  material  and  immaterial,  or  personal,  wealth.  One  of 
the  earliest,  and  also  one  of  the  most  enduring,  forms  of 
capital  was  living  capital  — meaning  thereby  not  only  oxen 
and  sheep  but  men,  women,  and  children.  The  animal  first 
tamed  by  man  was  man.  "  But  of  property,"  says  Aristo- 
tle,3 "  the  first  and  most  necessary  part  is  that  which  is 
best  and  chiefest ;  and  this  is  man."  An  interesting  ex- 

1  Six  Centuries  of  Work  and  Wages,  Vol.  I.,  p.  52. 

2  For  an  excellent  account  of  the  distinction  drawn  by  the  Physiocrats 
between  productive  and  unproductive,  see  Oncken's  (Euvres  de  Quesnay, 
Introduction. 

8  Economics,  Book  I.,  Ch.  V. 


38  PRINCIPLES  OF  POLITICAL  ECONOMY. 

ample  of  the  perpetuation  of  this  form  of  living  capital  is 
furnished  by  the  case  of  the  colliers  and  salters  in  the 
south  of  Scotland  in  the  reign  of  George  III.  "  The 
persons  engaged  in  these  occupations  were  at  this  time 
bondsmen ;  and  in  case  they  left  the  ground  or  the  farm 
to  which  they  belonged,  and  as  pertaining  to  which  their 
services  were  bought  or  sold,  they  were  liable  to  be  brought 
back  by  a  summary  process.  The  existence  of  this  species 
of  slavery  being  thought  irreconcilable  with  the  spirit  of 
liberty,  colliers  and  salters  were  declared  free  and  put  upon 
the  same  footing  with  other  servants  by  the  Act  15,  George 
III.  Ch.  28  (1775).  They  were  so  far  from  desiring,  or  priz- 
ing, the  blessing  conferred  on  them,  that  they  esteemed  the 
interest  taken  in  their  freedom  to  be  a  mere  desire  on  the 
part  of  the  proprietors  to  get  rid  of  what  they  called  head 
and  harigald  money  payable  to  them  when  a  female  of 
their  number  by  bearing  a  child  made  an  addition  to  the 
live  stock  of  their  master's  property." 1  They  were  not 
effectually  emancipated  till  1799.2 

The  substitution  of  freedom  for  slavery,  and  generally  of 
contract  for  status,  does  not  from  the  point  of  view  of  pro- 
duction alter  the  nature  of  economic  conceptions.  Even 
as  regards  material  wealth,  only  part,  and  the  least  im- 
portant part,  of  productive  processes  can  be  understood,  if, 
at  the  same  time,  adequate  attention  is  not  paid  to  the  pro- 
duction of  immaterial,  or  personal,  wealth.  Under  this 
heading  are  included  those  utilities  produced  in  human 
beings  and  classed  as  immaterial,  because  a  mental  element 
is  always  present  and  often  predominant.  Such  are  the 
intellectual  and  moral  qualities  which  are  of  economic 
importance.  Thus  the  technical  skill  of  the  artisan,  the 
scientific  knowledge  of  the  engineer,  the  trustworthiness  of 
the  banker,  and  the  practical  wisdom  of  the  trader  must  all 
be  considered  as  the  results  of  economic  production.  The 
labour  of  man,  aided  by  the  results  of  previous  labour  in 

1  Sir  Walter  Scott's  Redgauntlet,  Appendix,  Note  Y. 

2  See  McCulloch's  Adam  Smith,  p.  172. 


PRODUCTION.  39 

the  shape  of  intellectual  and  moral  capital,  works  upon  the 
natural  qualities  of  the  mind.  The  productive  power  of 
industrial  societies  depends  far  more  upon  the  growth  of 
knowledge  and  the  progress  of  morality  than  upon  the 
mere  accumulation  of  material  capital.1  We  have  to  con- 
sider not  only  the  science  that  can  be  inscribed  in  books 
but  also  that  which  can  only  be  written  on  the  mind ; 
whether  or  not  the  true  religion  can  only  be  transmitted 
from  living  man  to  living  man  may  be  a  matter  of  dispute, 
but  there  can  be  no  dispute  that  a  large  part  of  our  prac- 
tical knowledge  of  all  kinds  must  be  so  transmitted.  This 
has  been  admirably  brought  out  by  List.  "  The  present 
state  of  the  nations  is  the  result  of  the  accumulation  of 
all  discoveries,  inventions,  improvements,  perfections,  and 
exertions  of  all  generations  that  have  lived  before  us;  they 
form  the  mental  capital  of  the  present  human  race."  2 

The  truth  may  also  be  illustrated  from  the  negative  side. 
It  is  through  the  loss  not  of  their  material  but  of  their 
mental  capital,  in  many  cases,  that  great  civilisations  have 
been  destroyed.  In  other  cases  progress  has  been  arrested 
not  through  want  of  material  accumulation  but  by  the 
rigidity  of  codes  and  customs.  "  A  state  of  high  civilisa- 
tion is  difficult  to  keep  as  well  as  to  gain.  This  is  the 
teaching  of  facts  and  not  a  speculation.  So,  also,  it  is  not 
a  probability,  but  a  well-known  fact,  that  the  seats  of  civili- 
sation change.  The  centres  of  progress  in  the  world  are 
not  always  the  same.  They  seem  rather  to  be  forever 
shifting.  .  .  .  Taking  the  whole  world  into  view,  it  would 
seem  as  if  there  were  always  nations  which  are  losing,  and 
nations  which  are  gaining,  a  high  civilisation,  and  as  if  the 
seats  of  culture  were  forever  changing."  3  The  rigidity 
of  primitive  law,  sa}Ts  Sir  Henry  Maine,4  has  prevented,  or 
arrested,  the  progress  of  far  the  greater  part  of  mankind. 

1  Cf.  infra,  Ch.  XI. 

2  National  System  of  Political  Economy  (English  translation),  p.  140. 
8  Past  in  the  Present,  by  Sir  A.  Mitchell,  p.  214.     See  the  same  work  for 

many  illustrations  of  degradation  and  reversion. 
4  Ancient  Law,  p.  77. 


40  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Personal  services  have  always  been  and  still  are  of 
primary  economic  importance.  In  ancient  times  all  who 
could  afford  it  had  their  wants  ministered  to  by  slaves,  and 
their  modern  representatives  expend  a  large  part  of  their 
revenue  on  personal  attendants  of  various  kinds.  In  the 
census *  for  England  and  Wales  for  1881  the  persons 
returned  as  indoor  domestic  servants  were  no  fewer  than 
1,286,668,  and  exceeded  the  next  most  numerous  group,  the 
agricultural  labourers,  by  some  50  per  cent.  Out  of  every 
22  persons  in  the  population  of  all  ages  1  was  an  indoor 
domestic  servant.  Of  females  above  5  years  of  age,  1  in 
9  was  an  indoor  servant.  In  London,  the  proportion  to 
population  was  1  to  15,  in  Brighton  1  to  11,  and  in  Bath 
1  to  9.  This  account  does  not  include  coachmen,  grooms, 
gardeners,  etc.,  but  simply  indoor  servants  in  private 
families.  If  these  and  similar  classes  of  servants  were 
included  the  total  figure  would  rise  to  1,803,810.2 

From  the  earliest  times,  also,  the  production  of  ideas  has 
been  recognised  as  involving  labour,  and  ideas  were  appro- 
priated and  possessed  exchange  value.  The  priests,  poets, 
and  judges  may  have  offended  against  our  ideas  of  religion, 
art,  or  duty;  but  they  produced  ideas  after  their  kind,  and 
the  production  of  these  ideas  then,  as  now,  rested  partly 
on  an  economic  basis.  The  priest  had  his  share  of  the 
offering,3  the  minstrel  his  share  in  the  feast,  and  the  judge 
his  reasonable  or  customary  fee.  "  In  the  Homeric  trial 
scene  described  by  Homer,  as  depicted  on  the  shield  of 
Achilles,  the  dispute,  as  if  expressly  intended  to  bring  out 
the  characteristics  of  primitive  society,  is  not  about  prop- 
erty, but  about  the  composition  for  a  homicide.  One  per- 
son asserts  that  he  has  paid  it,  the  other  that  he  has  never 
received  it.  The  point  of  detail,  however,  is  the  reward 

1  Census  Report  for  1881,  p.  33. 

2  In  his  Budget  speech,  llth  April,  1892,  Mr.  Goschen  pointed  out  that 
the  lawyers  earned  a  larger  aggregate  income  than  the  cotton  manu- 
facturers, and  the  doctors  than  the  owners  of  coal  mines. 

8  See  Leviticus  passim.  In  modern  times  (1719)  John  Law  paid  the 
Abbfi  Tenc.in  £10,000  (in  shares)  for  converting  him  to  the  Catholic  faith. 


PRODUCTION.  41 

designed  for  the  judges.  Five  talents  of  gold  lie  in  the 
middle  to  be  given  to  him  who  shall  explain  the  grounds 
of  decision  most  to  the  satisfaction  of  the  audience." 1 

The  economic  characteristics  and  effects  of  the  produc- 
tion of  ideas  are  notably  exemplified  in  the  Roman  Catholic 
Church  in  the  mediaeval  period.  The  ideas  of  the  ex- 
pounders of  canon  law  2  tinge  all  the  regulations  and  prac- 
tices of  commerce.  The  condemnation  of  usury  of  money 
naturally  led  to  the  condemnation  of  '  anything  that  is 
lent  upon  usury,'  and  thus  everything  in  the  nature  of 
speculative  dealing  came  under  the  ban  of  the  law.  Things 
were  supposed  to  have  a  just  price,  almost  as  a  species  of 
natural  attribute.  The  church  received,  consumed,  and 
administered  a  large  part  of  the  annual  revenue  of  the 
county.  "  Over  and  above  the  rents  of  their  estates  the 
clergy  possessed  in  the  tithes  a  very  large  portion  of 
the  rents  of  the  other  estates  of  every  kingdom  in  Europe. 
The  revenues  arising  from  both  these  species  of  rents  were 
the  greater  part  of  them  paid  in  kind;  in  corn,  wine, 
cattle,  poultry,  etc.  The  quantity  exceeded  greatly  what 
the  clergy  could  themselves  consume ;  and  there  were 
neither  arts  nor  manufactures  for  the  produce  of  which 
they  could  exchange  the  overplus.  Both  the  hospitality 
and  the  charity  of  the  ancient  clergy,  accordingly,  are  said 
to  have  been  very  great.  They  not  only  maintained  al- 
most the  whole  poor  of  every  kingdom,  but  many  knights 
and  gentlemen  had  frequently  no  other  means  of  subsist- 
ence than  of  travelling  about  from  monastery  to  monastery, 
under  pretence  of  devotion,  but  in  reality  to  enjoy  the 
hospitality  of  the  clergy."  3 

But  it  would  be  grossly  unfair  to  suppose  that  the  me- 
diaeval churchmen  simply  received  vast  payments  for  insin- 
cere mummeries  and  degrading  superstitions.  Thorold 

1  Maine's  Ancient  Laic,  p.  377.     See  also  Professor  Ridgeway's  Ori- 
gin of  Currency,  etc.,  p.  8. 

2  An  excellent  account  of  the  economic  aspects  of  Canon  Law  is  given 
in  Ashley's  Economic  History,  Vol.  II.,  Ch.  VI. 

8  Wealth  of  Nations,  Bk.  V.,  Ch.  I. 


42  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Rogers,  who  had  a  profound  knowledge  of  mediaeval  life, 
and  certainly  no  trace  of  ecclesiastical  bias,  writes : 
"  England  was  planted  full  of  monasteries  and  of  capitular 
bodies.  The  monks,  especially  those  of  the  Benedictine 
order,  the  most  learned  and  respectable  of  the  older  bodies, 
generally  chose  some  locality  of  great  natural  beauty,  be- 
ing often  settled  in  some  poorly  peopled  district.  Here 
they  built  their  magnificent  churches  and  set  up  their  con- 
ventual buildings.  The  towns  were  full  of  these  ecclesi- 
astical corporations  whose  history  and  whose  downfall  is 
recorded  in  the  vast  work  of  Dugdale.  They  had,  to  be 
sure,  the  fatal  gift  of  wealth,  but  they  seem  to  have  used 
their  wealth  well.  They  were  founders  of  schools,  authors 
of  chronicles,  teachers  of  agriculture,  fairly  indulgent  land- 
lords, and  advocates  of  generous  dealings  towards  the  peas- 
antry. ...  It  is,  however,  very  difficult  to  put  oneself  in 
the  place  of  those  whose  devotion  to  saints  and  reverence 
for  relics  seems  to  us  so  credulous  and  so  degrading,  but 
it  would  be  intolerable  to  believe  that  the  respect  which 
they  professed  and  imposed  on  others  was  a  mere  hypo- 
critical grimace  put  on  to  serve  the  most  sordid  and  dis- 
honest ends." 1 

It  may,  perhaps,  appear  paradoxical  to  speak  of  the  pro- 
duction of  religious  ideas,  and  the  performance  of  ecclesias- 
tical ceremonies,  as  resting  upon  an  economic  basis.  Those 
who  think  so  may  be  referred  to  a  chapter  of  Adam  Smith  2 
which  has,  unfortunately,  not  received  sufficient  attention 
from  his  successors.  They  will  there  find  abundant  proof 
that  economic  influences  have  been  of  the  greatest  impor- 
tance in  the  growth  and  decay  of  religious  sects  and  estab- 
lishments. "  Had  the  Church  of  Rome,"  says  Adam  Smith, 
"  been  attacked  by  no  other  enemies  but  the  public  efforts 
of  human  reason  it  must  have  endured  forever.  But  that 
immense  and  well-built  fabric  which  all  the  virtue  and  wis- 
dom of  man  could  never  have  shaken,  much  less  have  over- 

1  Six  Centuries  of  English  Work  and  Wages,  p.  361. 

2  Bk.  V.,  Ch.  I. 


PRODUCTION.  43 

turned,  was  by  the  natural  course  of  things,  first  weakened 
and  afterwards  in  part  destroyed."  By  the  natural  course 
of  things,  he  alludes  to  those  purely  economic  causes, 
which  were  also  the  chief  agents  in  the  break-up  of  feu- 
dalism.1 With  the  progress  of  the  arts  and  the  spread  of 
commerce,  the  clergy,  like  the  barons,  discovered  that  they 
could  spend  their  whole  revenues  upon  their  own  persons ; 
and,  accordingly,  their  charity  gradually  dwindled,  and 
their  hospitality  became  less  profuse.  In  these  circum- 
stances the  price  paid  for  their  spiritual  services  seemed 
extravagant.  "  The  inferior  ranks  of  the  people  no  longer 
looked  upon  that  order,  as  they  had  done  before,  as  the 
comforters  of  their  distress,  and  the  relievers  of  their 
indigence.  On  the  contrary,  they  were  provoked  and 
disgusted  by  the  vanity,  luxury,  and  expense  of  the  richer 
clergy,  who  appeared  to  spend  upon  their  own  pleasures 
what  had  always  before  been  regarded  as  the  patrimony  of 
the  poor." 

In  precisely  the  same  way,  Adam  Smith  shows  that  the 
education  of  youth,  whether  in  schools  or  universities,  to 
be  effective,  must  be  placed  on  a  sound  economic  basis. 
"  The  proper  performance  of  every  service  seems  to  require 
that  its  pay  or  recompense  should  be,  as  exactly  as  possible, 
proportioned  to  the  nature  of  the  service.  If  any  service 
is  very  much  under-paid,  it  is  very  apt  to  suffer  from  the 
meanness  and  incapacity  of  the  greater  part  of  those  that 
are  employed  in  it.  If  it  is  much  over-paid,  it  is  apt  to 
suffer  perhaps  still  more  by  their  negligence  and  idleness." 
To  suppose  that  those  who  are  engaged  in  the  laborious 
profession  of  teaching  are,  or  ought  to  be,  purely  under 
the  sway  of  philanthropic  motives  is  a  preposterous  and 
mischievous  fiction.  A  country  would  soon  relapse  into 
barbarism  which  had  to  rely  solely  on  the  voluntary  efforts 
of  amateurs  in  its  schools  and  universities.  Similarly,  as 
regards  other  professions,  the  object  of  which,  economically 
considered,  is  to  produce  ideas  or  render  services,  we  gain 
1  Cf.  infra,  Bk.  II.,  Ch.  VIL 


44  PKINCIPLES  OF  POLITICAL  ECONOMY. 

far  more  than  we  lose,  if  we  follow  the  example  of  Adam 
Smith,  and  apply  the  analogies  suggested  by  the  production 
of  material  wealth.  To  be  qualified  to  produce  ideas  or 
render  services,  a  man  must  have  certain  natural  gifts : 
he  must  labour  these  gifts  as  the  farmer  labours  the  soil ; 
and  he  must  not  only  spend  material  capital  for  his  sus- 
tenance during  the  process  of  '  waiting,'  but  he  must  avail 
himself  of  the  mental  capital  of  the  past,  and,  in  general, 
pay  for  its  usance.  It  may  then  be  repeated,  with  addi- 
tional force,  that  in  all  kinds  of  production  there  are  three 
requisites  :  Nature,  Labour,  Capital. 

Hitherto  it  has  been  assumed  provisionally  that  these 
terms  were  sufficiently  intelligible  for  the  purpose  in  hand. 
In  the  following  chapters,  however,  a  deeper  analysis  will 
be  found  necessary ;  but  before  this  is  attempted  it  seems 
desirable  to  give  a  classification  of  the  various  kinds  of 
production,  and  also  to  describe  in  broad  outline  the  char- 
acteristics of  economic  consumption. 

§  4.  Classification  of  the  various  Kinds  of  Production. 
The  basis  of  classification  must  be  estimated  by  the  end 
in  view,  and  my  present  purpose  is  to  give  a  more  definite 
meaning  to  the  foregoing  analysis  of  production  by  enum- 
erating the  principal  species.  Production,  then,  may  be 
divided  into  two  great  divisions,  viz.,  material  and  imma- 
terial, and  each  of  these  may  be  again  subdivided. 

I.  Under  material  production  we  include  (a)  mere  occu- 
pancy ;  in  other  words,  the  apprehension  or  appropriation 
of  the  gifts  of  nature.  The  principle  is  in  many  respects 
analogous  to  the  legal  principle  of  first  occupancy  which 
has  had  such  important  and  unexpected  consequences.1  It 
is  usual  to  give  examples  from  that  early  stage  of  society 
in  which  men  are  assumed  to  live  by  gathering  fruits  and 
slaying  animals.  The  economic  principle,  however,  is  best 
illustrated  by  the  case  of  land  even  in  recent  times.  "  The 
beginning  of  our  national  career  found  us,"  says  Professor 
Walker  of  the  United  States,  "in  possession  of  a  vast 

1  Cf.  Maine's  Ancient  Law,  Ch.  VIII.    Blackstone,  Bk.  II.,  Ch.  I. 


PRODUCTION.  45 

public  domain,  on  which  our  earlier  financiers  looked  as 
an  important  fiscal  resource.  A  wiser  policy,  however, 
prevailed,  and  although  that  original  domain  has  been 
multiplied  fourfold  as  the  result  of  war  or  purchase,  it  has 
been  almost  as  rapidly  reduced  by  alienations,  all  wise  and 
patriotic  statesmen  agreeing,  with  almost  perfect  unanim- 
ity; that  no  fiscal  advantage  that  might  accrue  from  hold- 
ing the  public  lands  as  a  source  of  revenue  could  be 
weighed  against  the  interests  to  be  secured  by  these  lands 
becoming  the  individual  property  of  actual  cultivators." 
Practically  speaking,  any  one  who  will  undertake  to  bring 
land  into  cultivation  can  still  obtain  it  gratuitously.  An 
interesting  example  is  furnished  from  early  societies,  in  the 
remarkable  passage  quoted  by  Mr.  Seebohm  from  one  of 
King  Alfred's  treatises,  in  which  he  describes  how  a  clear- 
ing is  made  in  a  forest  and  a  new  ham  gradually  erected. 
The  first  stage  in  the  open-field  system  of  cultivation  was 
the  measuring  out  of  the  land  by  rods.  The  great  contest 
between  champion  and  several  (that  is  to  say  between  the 
open  fields  with  common  cultivation  and  enclosures),  from 
the  fifteenth  century  downwards,  is  essentially  an  example 
of  the  principle  in  question.  The  man  who  made  an 
enclosure  put  a  far  greater  utility  into  the  land  than  was 
represented  by  the  palings  or  wall  which  he  erected.  All 
such  appropriation  may  generally  be  regarded  as  in  itself 
a  kind  of  production  constituting  sometimes  the  first  and 
sometimes  the  final  stage  in  the  adaptation  of  a  thing  for 
consumption.1 

(6)  Under  the  next  class  we  may  place  agriculture  and 
the  extractive  industries  generally,  such  as  mines,  fisheries, 
forestry,  and  the  like.  By  these  we  obtain  food,  and  the 
necessaries  of  life,  as  well  as  the  raw  material  for  the  most 
extravagant  luxury. 

(c)  The  manufacturing  class  may  be  thought  to  require 
no  illustration.  It  may,  however,  be  useful  to  mention 

1  This  point  has  been  admirably  worked  out  by  the  Duke  of  Argyll : 
Scotland  as  it  was  and  as  it  is,  and  The  Unseen  Foundations  of  Society. 


46  PRINCIPLES  OF  POLITICAL  ECONOMY. 

that  the  term  must  not  be  confined  to  the  modern  factory 
system.1  Flint  implements,  for  instance,  were  manufac- 
tured on  a  large  scale  in  early  times  in  Scotland  from 
materials  imported  from  a  distance.2  Under  this  class  in 
the  broad  meaning  of  the  manipulation  of  raw  material, 
we  must  include  also  the  building  of  houses,  ships,  and 
bridges. 

(rf)  It  has  already  been  explained  that  transport  is  a 
species  of  material  production,  and  thus  we  easily  reach 
the  conclusion,  that,  in  a  sense,  exchange,  like  appropria- 
tion, may  be  considered  as  a  kind  of  production. 

The  writer  to  whom  in  this  classification 3  I  am  princi- 
pally indebted  also  places  under  material  production  the 
functions  performed  by  money,  banks,  and  credit  generally. 
It  seems  difficult  to  escape  this  inclusion  if  exchange  is 
admitted,  but  perhaps  the  best  plan  is  to  place  this  kind  of 
production  in  the  debatable  margin  (always  allowed  for  in 
economic  classification)  between  material  and  immaterial. 

II.  Under  immaterial  production  we  include  (a)  the 
creation  of  ideas  which  possess  economic  characteristics,  as, 
for  example,  in  literature,  art,  and  science.  The  institution 
of  copyrights  and  patents  shows  that  such  ideas  are  capable 
of  appropriation,  and  possess  exchange  value,  and  it  is  only 
by  an  honourable  fiction  that  they  are  not  supposed  to 
require  labour  of  an  irksome  kind. 

(b~)  We  also  include  the  services  rendered  which  have 
the  necessary  economic  marks,  practically,  that  is  to  say, 
those  services  for  which  wages  of  some  kind  are  paid,  but 
which  are  not  directly  embodied  in  a  material  product. 
Such,  for  example,  are  the  services  of  domestics  and  re- 
tainers of  all  kinds ;  of  those  employed  in  assuring  defence 
and  security ;  of  teachers,  ministers  of  religion,  actors  and 
singers,  and  of  all  those  engaged  in  the  administration  of 
justice  and  the  government  of  a  nation. 

1  See  History  of  the  Factory  System,  Cooke  Taylor. 

2  Wright's  Roman,  Celt,  Saxon. 

8  Kleinwachter,  in  Schonberg's  Handbuch,  Vol.  I,  p.  190. 


PRODUCTION.  47 

Finally  it  remains  to  be  added  that  for  certain  purposes 
it  is  useful  to  make  a  distinction  between  production 
(whether  material  or  immaterial)  for  home  use  and  for 
sale,  a  topic  which  will  require  some  discussion  in  the 
treatment  of  wages  in  the  next  book. 


APPENDIX  TO  CHAPTER  II. 

NOTE  1.  Sir  Walter  Scott,  in  the  introductory  epistle  to  the  Fortunes 
of  Nigel,  has  explained,  in  an  amusing  manner,  the  economic  side  of 
authorship  and  other  professions. 

"  Captain  Clutterbuck.  Yet  it  is  generally  held  base  to  write  from  the 
mere  motives  of  gain. 

Author.  It  would  be  base  to  do  so  exclusively,  or  even  to  make  it  a 
principal  motive  for  literary  exertion.  ...  So  the  lawyer  who  pleads, 
the  soldier  who  fights,  the  physician  who  prescribes,  the  clergyman,  if 
such  there  be,  who  preaches  without  any  zeal  for  his  profession,  or 
without  any  sense  of  its  dignity,  and  merely  on  account  of  the  fee,  pay, 
or  stipend,  degrade  themselves  to  the  rank  of  the  sordid  mechanic. 
Accordingly,  in  the  case  of  the  two  learned  faculties  at  least,  their  ser- 
vices are  considered  as  unappreciable  and  are  acknowledged,  not  by  any 
exact  estimate  of  the  services  rendered,  but  by  a  honorarium  or  volun- 
tary acknowledgment.  But  let  a  client  or  patient  make  the  experiment 
of  omitting  the  little  ceremony  of  the  honorarium,  and  mark  how  the 
learned  gentlemen  will  look  upon  his  case. 

Cant  apart,  it  is  the  same  thing  with  literary  emolument.  ...  I 
might,  perhaps,  with  as  much  truth  as  most  people,  exculpate  myself 
from  the  charge  of  being  either  of  a  greedy  or  mercenary  disposition ; 
but  I  am  not,  therefore,  hypocrite  enough  to  disclaim  the  ordinary 
motives  on  account  of  which  the  whole  world  around  me  is  toiling 
unremittingly  to  the  sacrifice  of  ease,  comfort,  health,  and  life." 

The  same  idea  is  excellently  conveyed  in  the  autobiography  of 
Benvenuto  Cellini,  who  was  a  rare  mixture  of  the  creative  artist  and 
the  acquisitive  man  of  business. 

NOTE  2.    On  the  comparative  value  of  Material  and  Immaterial  Wealth. 

I  have  shown  in  a  paper  (in  the  Economic  Journal,  March,  1891), 
entitled  the  Living  Capital  of  the  United  Kingdom,  that,  if  we  apply 
precisely  the  same  methods  as  are  applied  by  Mr.  Giffen  in  his  calcula- 
tions of  the  material  wealth,  the  value  of  the  people  of  the  country  is 
roughly  about  five  times  as  great  as  that  of  their  lands,  houses,  and 
material  possessions  generally.  See  infra,  Ch.  XI. 


CHAPTER  III. 

CONSUMPTION.1 

§  1.  Meaning  of  Consumption —  Objective  and  Subjec- 
tive. "Consumption,"  says  Adam  Smith,  "is  the  sole  end 
and  purpose  of  all  production ;  and  the  interest  of  the 
producer  ought  to  be  attended  to  only  so  far  as  it  may 
be  necessary  for  promoting  that  of  the  consumer.  This 
maxim  is  so  perfectly  self-evident  that  it  would  be  absurd 
to  attempt  to  prove  it."2  This  passage,  like  many  others 
by  the  same  writer,  has  been  quoted  and  applied  without 
any  reference  to  the  context,  or  even  to  the  general  argu- 
ment of  the  whole  work.  It  has  often  been  assumed  that 
if  only  things  become  cheaper  nothing  more  need  be  taken 
into  account.  It  is  hardly  credible,  though  perfectly  true, 
that  the  excessive  hours  of  labour  of  little  children,  before 
the  factory  legislation,  were  often  justified  on  the  ground 
of  the  cheapness  of  the  commodity  produced. 

The  nature  of  the  relations  between  production  and 
consumption  is  best  seen  by  expressing  both  in  terms  of 
utility.  Production,  as  shown  in  the  last  chapter,  con- 
sidered from  the  objective  point  of  view,  consists  in  putting 
utility  into  things,  or  more  generally  of  creating  utility; 
whilst,  from  the  subjective  point  of  view,  the  producer 
in  the  process  sacrifices  so  much  utility,  or  in  the  more 
familiar  language  of  Adam  Smith,  he  lays  down  a  certain 
portion  of  his  ease,  his  liberty,  and  his  happiness. 

1  The  general  reader  may  be  recommended  to  pass  over  the  latter  part 
of  this  chapter.    It  simply  gives  the  writer's  reasons  for  not  accepting 
certain  new  doctrines. 

2  Bk.  IV.,  Ch.  IX.,  conclusion,  p.  298,  McCulloch's  edition. 

48 


PRODUCTION.  49 

The  consumer,  on  the  other  hand,  by  the  act  of  con- 
sumption regarded  objectively  destroys  so  much  utility, 
whilst  subjectively  he  gives  himself  so  much  utility  in  the 
satisfaction  of  his  wants  or  desires.  Now  the  vast  majority 
of  the  people  of  a  country  are  producers  as  well  as  con- 
sumers, and  it  is  easy  to  see  that  they  might  gain  in  utility 
by  diminishing  the  pains  of  production  as  well  as  by  in- 
creasing the  pleasures  of  consumption.  Theoretically, 
then,  in  the  manner  attempted  by  Jevons,  it  seems  possible 
to  construct  a  calculus  of  utility  according  to  which  we 
may  procure  the  greatest  amount  of  what  is  desirable  at 
the  expense  of  the  least  that  is  undesirable.  Before  pro- 
ceeding, however,  to  examine  the  foundations  of  this 
doctrine,  to  which  in  recent  times  so  much  attention  has 
been  directed,  something  must  be  said  of  the  teaching  of 
older  writers  on  the  kinds  of  consumption. 

§  2.  Kinds  of  Consumption.1  In  the  advance  of  civilisa- 
tion the  use  of  material  goods  according  to  the  increasing 
variety  in  the  needs  of  man  is  divided  more  and  more  into 
special  branches.  In  fact,  we  have  a  division  of  use,  which 
both  as  cause  and  effect,  is  intimately  connected  with 
division  of  labour.  Take,  for  example,  the  case  of  wool. 
Not  only  are  there  many  kinds  according  to  differences  in 
breed  and  in  methods  of  rearing,  but  it  is  well  known  that 
a  modern  wool-stapler  will  make  several  assortments  from 
the  same  fleece.2  Opposed  to  this,  we  have  the  principle 
of  the  combination  of  use.  Many  of  the  anomalies  of  the 
laws  affecting  railways  in  the  United  Kingdom  may  be 
traced  to  the  fact,  that  it  was  at  first  assumed  that  traders 
would  provide  their  own  carriages,  and  manage  the  load- 
ing and  unloading  themselves ;  but  it  soon  became  apparent 
that  a  combination  of  use  was  more  advantageous.  Other 

1  In  this  section  I  am  much  indebted  to  Roscher's  Political  Economy, 
Bk.  IV. 

2  "  In  the  same  fleece  diversity  of  wool 
Grows  intermingled  and  excites  the  care 
Of  curious  skill  to  part  the  several  kinds." 

Dyer's  Fleece. 


50  PRINCIPLES   OF  POLITICAL  ECONOMY. 

illustrations  are  furnished  by  public  libraries,  parks,  thea- 
tres, baths,  hospitals,  and,  in  fact,  there  are  numberless 
goods  of  which  it  is  not  necessary  to  make  the  use  exclusive. 

Sometimes  the  utility  of  a  thing  is  destroyed  wholly 
or  partially,  not  by  any  change  in  the  thing  itself,  but  by 
a  change  in  the  minds  of  those  who  use  it.  Thus  books 
which  at  one  time  were  in  demand  may  be  converted  into 
waste  paper,  and  dresses  once  fashionable  may  be  practi- 
cally useless.1  On  the  other  hand,  sometimes  the  work 
of  consumption  is  performed  by  nature  altogether  against 
the  wishes  of  the  possessor  of  the  commodity.  Thus 
break-waters,  embankments,  and  docks  are  wasted  by  the 
powers  of  wind  and  water ; 2  buildings  crumble  away  under 
atmospheric  influences ;  useful  plants  and  animals  are  de- 
stroyed by  living  plagues ;  whilst  in  addition  to  the  accumu- 
lated effects  of  slowly  working  causes,  we  have  occasional 
catastrophes  through  hurricanes,  floods,  and  earthquakes. 

The  deeper  analysis  of  the  nature  of  production  and 
consumption  has  put  an  end  to  the  controversy  as  to  the 
line  of  division  between  productive  and  unproductive  con- 
sumers. "  There  is  no  production  possible  without  con- 
sumption. The  embodiment  of  a  special  utility  in  any 
substance  is  a  limitation  of  its  general  utility.  Thus,  for 
instance,  when  corn  is  baked  into  bread  it  can  no  longer  be 
used  for  the  manufacture  of  brandy  or  starch.  When, 
therefore,  consumption  is  a  condition  prerequisite  to  pro- 
duction it  is  called  productive."  3  Thus  we  are  forced  to 
the  conclusion  that  all  consumption  must  be  regarded  as 
productive  which  is  a  means  directly  or  indirectly  to  the 
satisfaction  of  any  economic  want.4  Unproductive  con- 

1  This  kind  of  consumption  is  called  by  the   Germans  Meinungs- 
Consumption. 

2  It  is  astonishing  to  observe  the  massive  masonry  which  is  necessary 
in  certain  parts  of  the  drainage  system  of  the  English  fens. 

»  Roscher,  Bk.  IV.,  Ch.  I.,  p.  211. 

4  I  have  not  thought  it  advisable  to  introduce  the  division  of  goods 
according  to  the  order  in  which  they  rank  in  respect  to  the  consumer. — 
Cf.  Marshall's  Principles,  Bk.  II.,  Ch.  III. 


PRODUCTION.  51 

sumption,  on  the  other  hand,  embraces  every  economic  loss, 
every  outlay  for  injurious  purposes,  and  every  superfluous 
outlay  for  useful  purposes.  There  is  no  need  to  dwell  upon 
the  fact  that  much  of  the  consumption  of  all  producers  is 
unproductive. 

There  are  many  difficult  and  important  problems  con- 
nected with  consumption,  but  they  are  so  intimately  asso- 
ciated with  other  topics,  that,  in  my  opinion,  it  is  undesirable 
to  treat  of  consumption  in  a  separate  department.1  It 
seems  necessary,  however,  in  view  of  the  stress  laid  by 
almost  all  recent  writers  on  one  of  these  problems,  to 
examine  it  at  this  stage  with  some  care,  although  it  will 
involve  to  a  certain  extent  the  anticipation  of  the  theory  of 
value.  The  reader  may  be  invited  to  return  to  the  follow- 
ing sections  in  connection  Avith  the  treatment  of  the 
problem  in  question  in  the  third  book.  The  problem 
referred  to  is  the  distinction  between  total  and  final  (or 
marginal)  utt7t£y,and  the  modes  by  which  they  are  measured. 
I  regret  that  on  this  subject  I  must  put  myself  in  apparent 
opposition  to  recent  works  of  great  and  deserved  reputation. 

§  3.  The  Measurement  of  Economic  Utility.  It  used  to 
be  a  common-place  of  political  economy  that  '  things  which 
have  the  greatest  value  in  use  may  have  little  or  no  value 
in  exchange.'  This  statement  implies  that  utility  cannot 
be  measured  by  price.  The  most  original  contribution, 
however,  to  economic  theory,  since  Mill  adopted  this  quota- 
tion with  approval,  is  to  be  found  in  the  development  of 
the  conception  that  utility  can  be  measured  by  price. 
This  radical  change  of  opinion  is  founded  upon  the  distinc- 
tion with  which  in  this  country  the  name  of  Jevons  is 
associated  between  total  and  final  (or  marginal)  utility. 
The  idea  of  measuring  such  an  intangible  variable  as  utility 
by  such  a  concrete  reality  as  price  is  certainly  very  fas- 
cinating. 

1  See  Political  Economy,  by  C.  S.  Devas,  Bk.  I.,  Chs.  IX.,  X.,  for  an 
excellent  account  of  the  nature  and  kinds  of  consumption.  Also,  article 
"  Consumption n '  in  Palgrave's  Dictionary,  by  the  present  writer. 


52  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Bentham,  who  with  rigorous  logic  had  expressed  all 
utilities,  from  poetry  to  push-pin,  in  terms  of  pleasure  and 
pain,  and  had  denied  any  real  qualitative  difference,  had 
not  advanced  in  the  measurement  of  the  quantity  of  utility 
beyond  the  enumeration  of  certain  important  causes  of 
difference.  These  are  indicated  with  sufficient  accuracy  in 
his  mnemonic  lines :  — 

i"  Intense,  long,  certain,  speedy,  fruitful,  pure, 
Such  marks  in  pleasures  and  in  pains  endure." 

Take  the  corresponding  substantives  suggested  by  these 
adjectives,  and  you  have  the  elements  of  the  hedonistic  cal- 
culus. Intensity,  duration,  certainty  or  uncertainty,  pro- 
pinquity or  remoteness,  are  obviously  to  be  considered  in 
making  an  estimate  or  comparison  of  different  pleasures. 
Fecundity,  or  the  chance  a  feeling  has  of  being  followed 
by  feelings  of  the  same  kind  ;  that  is,  pleasures  if  it  be  a 
pleasure,  pains  if  it  be  a  pain ;  purity,  or  the  chance  it  has 
of  not  being  followed  by  feelings  of  an  opposite  kind ; 
extent,  or  the  number  of  persons  to  whom  it  extends  and 
who  are  affected  by  it ;  these  are  three  other  elements 
added  by  Bentham.1 

Now  it  may  be  admitted  that  pleasure  and  also  utility  in 
the  broader  sense  vary  according  to  the  circumstances 
indicated.  But,  on  the  other  hand,  it  may  be  urged  that  it 
is  one  thing  to  point  out  causes  of  variation  and  quite 
another  to  measure  the  effects ;  and  generally  it  is  not 
the  best  or  the  simplest  method  to  measure  the  effects,  by 
indirectly  measuring  the  causes,  and  then  effecting  a  sum- 
mation. The  most  skilful  physician,  for  example,  could 
not  measure  a  rise  in  temperature  by  considering  the 
various  causes  in  operation,  whilst  the  patient  himself  by 

1  Jevons  characteristically  observes  that  '  these  three  last  circumstances 
are  of  the  highest  importance  as  regards  the  theory  of  morals  ;  but  they 
will  not  enter  into  the  more  simple  and  restricted  problem  which  we 
attempt  to  solve  in  Political  Economy.'  On  the  other  hand,  Professor 
Sidgwick  makes  economic  distribution  that  which  secures  the  greatest 
happiness  of  the  greatest  number. 


PRODUCTION.  53 

means  of  a  thermometer  could  determine  it  to  the  tenth  of 
a  degree.  So  long  then  as  utility,  even  when  reduced  to 
pleasure,  was  supposed  to  be  estimated  by  calculating  the 
strength  of  a  number  of  variable  causes,  accurate  measure- 
ment seemed  to  be  impossible.1  But  a  rise  or  fall  in  price  is 
as  definite  and  measurable  as  a  rise  or  fall  in  temperature, 
and  if  utility  can  be  measured  by  price,  then  we  have  at 
last  obtained  the  hedonometer  (or  pleasure-gauge)  which 
from  Plato  downwards  philosophers  had  sought  for  in  vain. 

§  4.  Total  and  Final,  or  Marginal,  Utility  —  Exposition. 
In  a  work  of  this  kind  exposition  must  precede  criticism, 
and  it  is  best  to  begin  with  the  simplest  case.  Let  us  take 
then  the  utility,  in  the  sense  of  immediate  pleasure,  de- 
rived from  the  consumption  of  some  commodity  —  say 
water.  Pouring  water  down  a  person's  throat  may  under 
certain  conditions  of  thirst  give  the  most  intense  pleasure; 
the  same  process  carried  to  an  extreme  formed  one  of  the 
most  exquisite  tortures  of  the  inquisition.  It  is  obvious 
in  this  case  that  the  degree  of  utility  or  disutility  to  be 
derived  from  swallowing  or  being  made  to  swallow  an 
additional  mouthful  of  water  depends  inter  alia  upon  the 
amount  already  swallowed.  We  may  assume  that  the 
degree  of  utility  or  pleasure  diminishes  by  continuous  ' 
gradations,  and  passes  through  a  point  of  indifference  into 
disutility  or  pain  which  again  increases  by  continuous 
gradations. 

The  utility  derived  from  the  last  portion  swallowed  is 
called  the  final  or  marginal  utility,  and  the  sum  of  the 
utilities  of  all  the  successive  portions  swallowed  is  the 
I»tn1  utility.  In  the  case  of  water  drunk  by  a  free  agent, 
we  may  assume  that  consumption  would  go  on  to  the  point 
of  indifference,  or,  more  technically,  to  the  point  when  the 
marginal  utility  becomes  zero.  The  same  rule  would 
apply  to  the  consumption  of  all  articles  of  which  the 
consumer  had  a  supply  practically  unlimited. 

1  See  the  admirable  discussion  of  the  difficulties  of  a  hedonistic  calculus 
in  Professor  Sidgwiek's  Methods  of  Ethics,  Bk.  II. 


& 


54  PRINCIPLES  OF  POLITICAL  ECONOMY. 

As  already  pointed  out,  however,  economic  utilities  are 
limited,  and  acquisition  must  precede  consumption.  For 
the  present  purpose  we  may  next  assume  that  the  mode  of 
acquisition  is  in  general  by  the  expenditure  of  money. 

It  seems,  also,  both  true  and  necessary  to  state  further 
that  the  money  at  the  disposal  of  every  person  is  limited.  It 
may,  then,  be  laid  down  as  a  general  law,  that  the  more  a 
person  acquires  of  anything  the  less  will  he  be  inclined  to 
pay  for  an  addition  to  his  stock.  After  a  certain  point  is 
reached  he  will  prefer  to  keep  his  money  for  future  needs, 
or  to  spend  it  upon  some  other  commodity.  In  this  way  we 
are  able,  to  some  extent,  to  connect  utility  with  price.  For 
we  may  assume,  taking  for  the  sake  of  emphasis  some  neces- 
sary of  life,  that  the  utility  of  the  first  portion  acquired  is  so 
great  that  for  that  portion  a  person  would  be  willing  to  pay 
a  very  great  price ;  but  as  with  successive  acquisitions  the 
utility  of  each  portion  becomes  less,  so,  also,  the  price  which 
he  is  willing  to  pay  becomes  less.  The  price  of  the  last 
portion  bought  may  thus  be  said  to  measure  the  utility  of 
that  portion  for  this  individual  under  these  conditions  (that 
is  assuming  a  continuous  diminution  in  utility).  In  other 
words  the  marginal  price  measures  the  marginal  utility. 

The  argument  may,  perhaps,  be  made  clearer  by  consider- 
ing the  gradual  expenditure  of  a  person's  store  of  money. 
In  this  case  it  is  convenient  to  state  the  law  of  diminishing 
utility  in  a  reverse  way,  and  to  say,  that  as  the  stock  of 
money  decreases  through  expenditure,  the  marginal  utility 
of  the  last  portion  retained  continuously  rises.  It  follows, 
then,  that  the  further  acquisition  of  a  commodity  for  con- 
sumption is  checked  in  a  double  manner,  because  as  the 
utility  of  the  next  portion  to  be  bought  decreases,  the 
utility  of  the  price  of  money  to  be  given  for  it  increases. 

It  must  be  remembered,  also,  that  in  highly  civilised 
societies,  at  any  rate,  there  is  practically  an  infinite 
number  of  modes  of  spending  a  given  sum  of  money.1 

1  This  seems  better  than  saying  that  only  a  small  part  of  a  person's  ex- 
penditure is  given  to  one  thing. 


PRODUCTION.  55 

This  variety  of  choice  imposes  a  further  check  on  the  ac- 
quisition of  a  particular  thing.  Thus  it  is  no  uncommon 
thing  for  people  to  stint  themselves  in  what  are  deemed 
necessaries  in  order  to  satisfy  some  other  desire,  which 
may  range  from  love  of  ornament  or  display  or  indulgence 
to  feeding  and  clothing  the  destitute. 

We  are  now  in  a  position  to  see  that  it  is  the  marginal 
and  not  the  total  utility  of  a  thing  which  governs  a  person's 
additional  expenditure.  Half  a  pound  of  bread  it  might 
be  thought  must  always  possess  more  utility  for  a  poor 
man  than  a  quarter  of  an  ounce  of  tobacco ;  but  when  we 
see  that  he  spends  regularly  a  penny  a  day  on  tobacco  we  | 
know  that  he  thereby  gains,  or,  what  is  the  same  thing, 
thinks  he  gains  more  satisfaction  than  by  buying  an  addi- 
tional pennyworth  of  bread.  The  utility  of  the  first  loaf 
of  his  daily  bread  may,  indeed,  be  infinite ;  but  the  marginal 
utility  of  successive  loaves  rapidly  diminishes,  and  it  is  the 
marginal  utility  that  determines  marginal  expenditure. 

It  follows,  also,  that  when  it  is  said  that  a  thing  may 
have  great  value  in  use  but  little  value  in  exchange, 
value  in  use  must  be  understood  to  refer  to  total  utility.  * 
To  a  person  who  has  satisfied  most  of  his  wants  to  reple- 
tion,  the  utility  of  a  diamond  might  well  be  greater  than 
the  utility  of  an  addition  to  his  food,  clothes,  or  furniture, 
or  than  that  of  the  retention  of  a  fifty-pound  note. 

§  5.  Total  and  Final  Utility —  Criticism.  We  may 
appear  now  to  have  reached  the  conclusion  that  marginal 
utility,  at  any  rate,  can  be  measured  by  money.  In  reality, 
however,  all  that  has  been  established  is,  that  any  individ- 
ual, who  is  guided  by  enlightened  economic  interest,  ought 
so  to  adjust  his  expenditure,  that  the  marginal  utilities  of 
all  the  commodities  acquired  are  equal  to  one  another.  If 
they  are  not  equal  he  has  spent  too  much  on  some  things 
and  too  little  on  others.  Even  this  is  only  true  on  the 
assumption  that  (as  in  the  usual  curve)  we  have  a  continu- 
ous diminution  in  the  utility  of  each  successive  portion. 
To  this  we  may  add,  if  we  further  assume  that  the  person 


56  PRINCIPLES  OF  POLITICAL   ECONOMY. 

in  question  saves  some  of  his  money,  that  the  marginal 
utility  of  the  last  penny  added  to  his  savings  ought  to  be 
equal  to  the  marginal  utility  of  the  last  penny  given  to 
his  expenditure.  In  this  way,  it  is  true,  we  bring  in  another 
marginal  utility ;  but  the  utility  of  the  penny  cannot  be 
said  to  be  measured  by  a  penny.  The  utility  to  any  person 
of  a  penny  depends  upon  what  he  has  and  what  he  wants, 
and  is  subject  to  constant  variations  according  to  changing 
circumstances. 

The  point  of  the  criticism  may  be  brought  out  more 
clearly,  if  we  assume,  as  at  one  time  was  generally  as- 
sumed, that  money  is  regarded  solely  as  a  means  of  effect- 
ing exchanges.  We  may  thus  look  upon  a  man  as  earning 
money  by  labour,  and,  in  reality,  exchanging  his  labour 
against  commodities  by  means  of  money.  In  this  case  we 
should  suppose  that  he  would  go  on  working  until  the  dis- 
utility or  discomfort  of  earning  another  penny  was  just 
greater  than  the  utility,  or  comfort,  of  spending  this  extra 
penny.  Here,  however,  we  are  only  comparing  the  utility 
(say)  of  an  extra  pipe  with  the  disutility  of  an  extra  quar- 
ter of  an  hour's  labour. 

The  penny  does  not  measure  either  the  utility  or  the 
disutility.  It  throws  no  light  whatever  on  the  question 
how  much  pleasure  he  feels  in  smoking,  or  how  much  pain 
in  working. 

If  utility  (in  other  words,  value  in  use  as  distinct  from 
exchange  value)  were  measurable  in  terms  of  money,  then 
we  ought  to  be  able  to  measure,  in  terms  of  money,  not 
merely  the  utilities  that  possess  exchange  value,  but  others 
equally.  Sunshine,  for  example,  is  limited,  and  we  can 
express  the  variations  in  the  utility  derived  from  it  in 
various  ways.  But  we  certainly  cannot  express  even  the 
marginal  utility  of  sunshine  in  terms  of  price. 

The  simple  truth  is,  that  money  measures  exchange  value, 
and  exchange  value  does  not  depend  only  upon  utility.1 

1  It  is  worth  noting  that  those  who  have  most  logically  tried  to  carry  out 
the  measurement  of  utility  by  price  have  been  forced  to  the  conclusion  that 
value  depends  only  on  utility.  —  Cf.  Dr.  Smart's  Theory  of  Value,  p.  8. 


PRODUCTION.  57 

The  marginal  utility  of  any  commodity,  as  explained 
above,  influences  the  demand  of  a  particular  individual, 
and  this  demand  is  one  of  the  elements  that  influences 
the  price  of  the  article.  In  the  same  market  we  may  sup- 
pose that  the  whole  stock  of  a  commodity  will  be  sold 
at  the  same  price ;  but  it  needs  no  demonstration  that  the 
acquisition  of  the  article  will  give  very  different  degrees 
of  utility  in  different  cases.  If  we  assume  that  all  the 
buyers  have  the  same  incomes  and  the  same  tastes,  and,  in 
fact,  are  in  all  respects  similar,  then  we  may,  indeed,  say 
that  the  utilities  also  will  be  equal ;  but  this  is  simply 
begging  the  question. 

§  6.  Consumer  s  Rent.  If,  however,  marginal  utility 
cannot  be  measured  by  money,  still  less  can  total  utility. 
In  this  case,  clearly,  we  never  get  beyond  the  range  of 
Ivypotheses.  We  assume  that  for  the  first  portion  pur- 
chased an  individual  would  be  willing  to  give  so  much 
more  than  the  actual  price  he  is  called  upon  to  pay,  and 
that  he  will  go  on  purchasing  so  long  as  the  utility  of 
acquisition  of  successive  portions  is  not  less  than  the 
utility  of  the  money  expended.  In  the  typical  case,  in 
which  perfect  continuity  is  assumed,  we  may  suppose  that 
he  will  continue  to  buy  until  the  final  utilities  of  all  his 
purchases  are  just  equal.  It  may  well  happen,  however, 
that  even  for  the  last  portion  which  he  actually  buys  he 
would  be  willing  to  give  much  more  money.  To  keep  all 
his  fires  going  in  the  best  manner,  a  very  rich  man  might 
give  fifty  pounds  for  the  last  ton  of  coal  necessary,  and 
yet  use  no  more  if  the  price  fell  to  one  pound  per  ton.1 

In  any  case,  we  may,  of  course,  calculate,  as  regards  every 
portion  acquired,  the  excess  of  the  hypothetical  price  over 
the  actual  price,  and  we  may  add  up  the  differences  and 
call  the  sum  total  consumer's  rent.  But  all  we  do  is,  by 
an  ingenious  but  dcubtful  analogy,  to  illustrate  the  advan- 
tages of  cheapness  and  plenty.  It  is,  however,  always 

1  In  this  case  there  is  discontinuity, — but  such  discontinuity  is  very 
common. 


58  PRINCIPLES  OF  POLITICAL   ECONOMY. 

dangerous  to  give  the  appearance  of  reality  to  what  is 
purely  hypothetical,  and  the  appearance  of  definiteness 
to  what  is  indefinite. 

An  example  will,  perhaps,  show  in  the  clearest  way  that 
the  measurement  of  total  utility  by  price  is  purely  illusory, 
even  if  we  take  only  a  single  individual.  Suppose,  then, 
that  a  person  has  £100  a  year.  Rather  than  go  without  a 
minimum  of  subsistence,  he  would  give  the  whole  £100 
for  this  purpose.  But,  as  the  vegetarians  tell  us,  he  can 
live  on  sixpence  a  day,  or  roughly  (say)  on  .£10  a  year. 
Therefore  his  consumer's  rent  on  this  part  of  his  expendi- 
ture is  at  least  £90.  He  has  also  <£90  left  after  satisfying 
his  hunger.  Suppose,  now,  that  to  clothe  himself  decently, 
he  would  be  willing  to  spend  £60  of  this  £90,  but  that  he 
can  get  all  he  requires  for  £10.  Here,  again,  there  emerges 
on  the  commodity  of  clothing  a  consumer's  rent  of  £50. 
And  he  has  still  £80  left.  Of  this,  suppose  he  was  will- 
ing to  pay  £30  for  furnished  rooms,  rather  than  do  with- 
out shelter,  but  again  let  the  actual  cost  of  the  rooms  be 
£10.  In  this  case,  he  obtains  a  consumer's  rent  of  £20. 
Thus,  taking  only  three  branches  of  expenditure,  a  person 
with  £100  a  year  has  gained  a  consumer's  rent  of  £160, 
and  has  still  £70  left  to  spend.  By  taking  various  assump- 
tions similar  to  those  above,  the  consumer's  rent,  measured 
in  this  way  from  the  wealth  obtained  for  his  £100  may  be 
still  further  increased.  But  such  a  method  of  measure- 
ment seems  to  me  purely  hypothetical  and  illusory.  Of 
what  avail  is  it  to  say  that  the  utility  of  an  income  of 
£100  a  year  is  worth  (say)  £1000  a  year? 

If,  as  is  sometimes  done,  instead  of  taking  a  limited 
income,  and  assuming  that  a  man  can  give  no  more,  even 
to  save  his  life,  we  say  that  the  utility  of  the  minimum  of 
food  is  practically  infinite,  the  idea  of  measuring  total 
utility  or  consumer's  rent  by  money  becomes  still  more 
unreal.  For,  now,  all  that  we  mean  is,  that  if  a  man  had 
infinite  wealth,  he  would  spend  it  all  to  save  his  life.  But 
this  is  little  better  than  a  reminiscence  of  the  wisdom  of  Job. 


PRODUCTION.  59 

It  must  be  observed  that  the  criticism  in  this  section  is 
not  directed  against  the  qualitative  distinction  between 
total  and  final  utility.  As  will  appear  later  on,  the  real 
advantages  of  exchange  and  the  nature  of  demand  are 
elucidated  by  taking  account  of  this  difference.  It  is  the 
attempt  to  measure  utility  (in  either  form)  in  terms  of 
money  that  appears  to  me  delusive.  For,  strictly  speak- 
ing, we  can  never  get  beyond  one  individual,  and  that 
too,  under  hypothetical  conditions. 

Whether  or  not  a  man  will  buy  another  portion  of  some 
commodity  depends  not  only  upon  how  much  he  has 
already  of  that  thing,  but  upon  how  much  money  he 
has  still  to  spend ;  and  this,  again,  depends  partly  upon 
how  much  he  has  already  spent,  and  partly  upon  how 
much  he  had  to  begin  with.  Thus,  even  with  the  same 
individual,  a  change  in  the  cost  of  some  things  must 
change  his  so-called  subjective  valuation  of  other  things. 
The  money  measure,  then,  of  the  final  utility  of  anything 
varies  not  only  with  his  desires  and  means  of  satisfaction 
in  respect  of  that  thing,  but  with  his  desires  and  means  in 
respect  of  all  other  things.  All,  then,  we  have  left  is  the 
assertion  that  at  any  moment  a  person  will  not  buy  more 
of  anything  if  he  thinks  he  can  do  better  by  applying  the 
money  in  some  other  way.  The  utility  of  the  last  piece 
of  money  given  may  be  said,  no  doubt,  at  that  time  to  that 
individual,  as  already  explained,  to  equal  the  utility  of  the 
last  portion  of  the  commodity  acquired;  but  to  say  that 
he  likes  one  thing  just  as  well  as  another  tells  nothing  as 
to  how  much  he  likes  either. 

When  we  try  to  introduce  a  number  of  other  people, 
our  conclusion  is  still  more  barren ;  for  now  all  we  are 
entitled  to  say  is  that  somebody,  at  some  point,  will  find 
that  the  price  is  such  that  he  is  willing  to  purchase  just 
one  more  portion  at  that  price.  But  of  the  rest  of  the 
multitude,  some  would  have  been  satisfied  to  pay  a  higher 
price  for  their  last  portion,  and  some  are  not  willing  to 
pay  that  price.  So  that  the  price  measures  the  final  utility 


60  PRINCIPLES   OF  POLITICAL   ECONOMY. 

to  this  individual  (and  others  exactly  similar),  and  as 
before,  it  only  measures  it  in  terms  of  the  utility  he  and 
they  attach  to  the  money  spent. 

In  my  opinion,  then,  the  attempt  to  measure  utility  — 
even  marginal  utility  and  a  fortiori  total  utility — in  terms 
of  price  is  misleading.  It  is  a  case  of  the  use  of  an 
inappropriate  conception.1  It  seems  to  me  far  preferable 
(as  the  older  writers  did)  to  emphasise  the  fact  that  price 
measures  exchange  value,  and  not  utility.  To  do  other- 
wise is  to  maintain  a  constant  struggle  with  paradoxes, 
explanations,  and  hypotheses.  Some  of  these  are  noticed 
in  the  appendix  to  this  chapter. 

§  7.  The  Measurement  of  Utility  by  Labour.  Adam 
Smith  has  been  severely  criticised  for  the  assertion  that 
labour  is  '  the  ultimate  and  real  standard  of  value.'  The 
truth  appears  to  be  that  in  discussing  the  difference  between 
'  the  real  and  nominal  price  of  commodities,  or  of  their 
price  in  labour  and  their  price  in  money,'  he  passes  un- 
consciously between  objective  exchange  value  and  subjec- 
tive value  in  use  (or  utility).  So  far  as  exchange-value 
is  concerned,  the  criticism  offered  by  Mill 2  appears  to  be 
just;  and  it  has  been  strengthened  by  recent  work  on 
index  numbers  and  other  methods  of  measuring  changes 
in  the  purchasing  power  of  money.  No  simple  absolute 
measure  of  exchange  value  is  attainable.  "  Why,"  asks 
Ricardo,3  "  should  gold,  or  corn,  or  labour,  be  the  standard 
measure  of  value,  more  than  coals  or  iron?  —  more  than 
cloth,  soap,  candles,  and  the  other  necessaries  of  the 
labourer?  —  why,  in  short,  should  any  commodity,  or  all 
commodities  together,  be  the  standard,  when  such  a  standard 
is  itself  subject  to  fluctuation  in  value?"  The  answer, 
however,  to  this  question,  and  the  consideration  of  the 

1  An  illustration  may  be  taken  from  heat.     A  clinical  thermometer 
will  measure  accurately  the  heat  of  the  body  —  but  it  says  nothing  of  the 
corresponding  feeling.     Heat  is  one  thing  as  a  mode  of  motion  —  another 
as  a  sensation. 

2  Cf.  Mill,  Bk.  III.,  Ch.  XV. 
«  Ricardo,  Ch.  XX.,  p.  166. 


PRODUCTION.  61 

difficulties  involved  must,  in  the  present  work,  be  trans- 
ferred to  the  department  of  exchange  value. 

But  as  is  partially  admitted  by  Mill,  Adam  Smith  is  on 
firmer  footing  when  he  proposes  to  measure  by  labour,  or 
a  quantity  of  labour  not  exchange  value,  but  value  in  use 
or  utility.1  "  Equal  quantities  of  labour,  at  all  times  and 
places,  may  be  said  to  be  of  equal  value  to  the  labourer. 
In  his  ordinary  state  of  health,  strength,  and  spirits,  in 
the  ordinary  degree  of  his  skill  and  dexterity,  he  must 
always  lay  down  the  same  portion  of  his  ease,  his  liberty, 
and  his  happiness.  The  price  [i.e.,  disutility],  which  he 
pays  must  always  be  the  same,  whatever  may  be  the 
quantity  of  goods  which  he  receives  in  return  for  it. 
[Here  he  passes  to  exchange  value.]  Of  these,  indeed,  it 
may  sometimes  purchase  a  greater  and  sometimes  a  smaller 
quantity ;  but  it  is  their  value  which  varies,  not  that  of 
the  labour  which  purchases  them.  At  all  times  and  places, 
that  is  dear  which  it  is  difficult  to  come  at,  or  which  costs 
much  labour  to  acquire,  and  that  cheap  which  is  to  be 
had  easily,  or  with  very  little  labour.  Labour  alone,  there- 
fore, never  varying  in  its  own  value  [disutility],  is  alone 
the  ultimate  and  real  standard  by  which  the  value 
[exchange'}  of  all  commodities  can,  at  all  times  and  places 
be  estimated  and  compared." 

In  this  passage  we  have,  at  any  rate,  a  standard  sug- 
gested for  the  measurement  of  utility,  which  is  not  open  to 
the  same  objections  as  a  "shilling's  worth  of  happiness." 
The  more  ease,  liberty,  and  happiness,  a  man  is  willing  to 
lay  down  to  acquire  a  thing,  so  much  the  greater  must  be 
supposed  the  utility  to  him  of  the  thing;  and  we  are  com- 
paring similar  things  —  the  sacrifice  of  happiness  with  the 
acquisition  of  happiness.  We  may  suppose,  according  to  I 
the  law  of  diminishing  utility,  that  he  goes  on  laying 
down  happiness  with  a  decreasing  gain,  but  still  some 
gain,  until  he  reaches  the  point  of  indifference.  By  a 
stretch  of  the  scientific  imagination,  we  may  suppose  that 

1  MeCulloch's  Edition,  p.  15. 


62  PRINCIPLES   OF  POLITICAL  ECONOMY. 

a  prudent  man,  well  skilled  in  the  use  of  the  hedonistic 
calculus,  might  express  all  utilities  whatever  in  terms  of 
the  quantity  of  labour  he  would  be  willing  to  give  for 
them,  and  if  we  further  assume  the  possibility  of  different 
people  adopting  the  same  subjective  measure,  we  arrive 
(hypothetically)  at  a  perfect  standard  of  utility.  It  is, 
however,  quite  clear  on  reflection  that  the  appearance  of 
exact  measurement  (although  not  contradictory  as  in  the 
former  case)  is  equally  illusory,  and  it  has  only  been  intro- 
duced for  the  purpose  of  showing  the  difficulties  involved. 
"A  franc,"  says  Ricardo,  "is  not  a  measure  of  value  for 
anything,  but  for  the  quantity  of  the  same  metal  of 
which  francs  are  made,  unless  francs  and  the  thing  to  be 
measured  can  be  referred  to  some  other  measure  which  is 
common  to  both.  This,  I  think,  they  can  be,  for  they  are 
both  the  result  of  labour,  and,  therefore,  labour  is  a  com- 
mon measure  by  which  their  real  as  well  as  their  relative 
value  may  be  estimated." 1  If,  by  value  in  the  first  phrase, 
Ricardo  had  intended  utility,  he  would  have  exactly 
expressed  the  criticism  implied  in  this  section,  —  a  franc 
is  not  the  measure  of  the  utility  of  anything;  but  the 
next  clause  shows  that  he  is  referring  to  objective  ex- 
change value,  which  he  supposes  to  rest  upon  cost  of 
production,  and  this  again  upon  quantity  of  labour. 

It  must  be  understood  that  in  the  present  section  I  do 
not  profess  to  give  an  exhaustive  and  critical  account  of  the 
opinions  of  the  three  great  writers  named  upon  the  ques- 
tion in  hand.  My  object  is  rather  to  indicate  that  what 
they  have  failed  to  make  clear  calls  for  close  attention  on 
the  part  of  the  reader.  The  exaggerated  stress  recently  laid 
on  the  doctrine  of  final  utility,  and  its  consequences,  must 
be  my  apology  for  the  length  and  difficulty  of  this  chapter. 

1  Of.  Ricardo,  p.  171. 


PRODUCTION.  63 


XOTE  ON  PROFESSOR  MARSHALL'S  TREATMENT  OF  CONSUMER'S 

RENT. 

If  the  idea  of  Consumer's  Rent  were  intended  simply  to  explain  the 
varying  degrees  of  satisfaction  derived  from  spending  money  in  various 
ways  —  in  other  words,  if  it  were  intended  simply  for  the  explication  of 
certain  conceptions  —  the  hypothetical  character  of  the  measurements 
assumed  might  be  passed  over.  But  Professor  Marshall  definitely 
states  that '  the  exact  measurement  of  the  Consumer's  Rent  in  a  market 
has  already  a  great  theoretical  interest,  and  may  become  of  high 
practical  importance.' * 

He  applies  the  notion  also  to  such  definite  concrete  problems  as  the 
imposition  of  taxes  and  the  bestowal  of  bounties.  "It  might  even  be 
to  the  advantage  of  the  community,  that  the  government  should  levy 
taxes  on  commodities  which  obey  the  law  of  diminishing  return,  and 
spend  part  of  the  proceeds  on  bounties  to  commodities  which  obey  the 
law  of  increasing  return."  2  Stripped  of  its  technical  phraseology,  this 
amounts  to  saying  that  a  government,  with  advantage  to  the  com- 
munity, might  tax  bread  and  coals  to  give  a  bounty  on  calico  and 
matches ;  or  more  generally,  that  it  might  tax  agricultural  and  min- 
eral produce  to  give  bounties  to  manufactures.  A  paradox  of  this 
kind  is  only  presentable  when  arrayed  in  hypotheses,  and  it  may  be 
useful  to  notice  some  of  the  most  prominent. 

(1)  In  the  general  explanation  of  the  doctrine  of  Consumer's  Rent 
(Bk.  III.,  Ch.  VI.)8  it  is  stated:  "There  is  a  difficulty  in  estimating 
the  total  utility  of  commodities,  some  supply  of  which  is  necessary  for 
life ;  for  instance,  the  utility  of  the  food  required  to  keep  a  man  from 
starvation  is  indefinitely  great.    The  best  plan  is,  perhaps,  to  take  that 
necessary  supply  for  granted,  and  estimate  the  total  utility  only  of  that 
part  of  the  commodity  which  is  in  excess  of  this  amount."     Surely  it 
is  a  strange  procedure  to  leave  out  of  the  total  utility  of  necessaries 
all  that  utility  which  causes  them  to  be  called  by  that  name.     Again, 
if  the  utility  of  the  first  portion  is  '  indefinitely  great,'  when  measured 
by  price  the  price  also  'must   be  'indefinitely  great.'     But  no  man 
can  give  more  than  he  possesses,  and  the  conception  of  an  indefinitely 
great 4  price  is  contradictory,  since  all  incomes  are  limited. 

(2)  It  is  further  assumed  (p.  182,  note)  in  the  preliminary  state- 
ment that  it  is  '  not  necessary  to  take  account  for  our  present  purpose 
of  the  possibility  that  the  marginal  utility  of  money  to  him  might  be 

i  Principles,  Vol.  I.,  p.  186.  2  P.  508-11.  3  P.  181,  Note. 

4  Of  course  the  standard,  as  usual,  is  assumed  to  be  constant.  When  incon- 
vertible paper  is  on  the  point  of  being  discarded  as  worthless,  prices  measured 
in  that  medium  may  be  said  to  be  indefinitely  great.  ' 


64  PRINCIPLES  OF   POLITICAL  ECONOMY. 

appreciably  altered  in  the  course  of  his  purchases.'  In  the  mathe- 
matical Note  VI.  (p.  753)  this  assumption  is  stated  still  more  explic- 
itly, and  made  to  rest  on  the  ulterior  assumption  'which  underlies 
our  whole  reasoning,  that  the  expenditure  on  any  one  thing,  as  for 
instance,  coals,  is  only  a  small  part  of  his  whole  expenditure.'  The 
same  position  is  taken  up  in  the  text  (p.  393),  although  on  the  next 
page  it  is  allowed  that  in  markets  for  labour  the  exceptions  are  fre- 
quent and  important,  and  that  a  workman  in  fear  of  hunger,  and 
putting  a  very  high  marginal  utility  on  money,  may  go  on  selling  his 
labour  too  cheap.  It  is,  however,  clear  that  in  all  cases  we  must 
consider  the  marginal  utility  of  money.  Even  the  dealer,  who  looks  to 
re-selling  the  article,  finds  that  the  more  he  has  bought  the  less  he  can 
buy,  and  that  his  potential  resources  are  diminished  by  every  transac- 
tion, e.g.,  in  a  speculation  for  the  rise  on  the  stock  exchange,  or  in 
laying  in  stores  in  view  of  a  scarcity,  or  in  buying  with  the  view  of 
extending  his  business.  If  we  take  the  case  of  the  ordinary  consumer, 
the  most  obvious  condition  which  he  must  always  take  account  of  is, 
that  the  more  he  spends  the  less  he  has  to  spend ;  and  apart  from  this 
the  great  mass  of  the  people  spend  the  bulk  of  their  earnings  on  a 
very  few  commodities. 

The  importance  of  this  assumption  may  be  gathered  from  the  fol- 
lowing passage  (p.  394)  :  "  The  theory  of  buying  and  selling  becomes, 
therefore,  much  more  complex  when  we  take  account  of  the  depend- 
ence of  marginal  utility  on  amount,  in  the  case  of  money  as  well  as  of 
the  commodity  itself.  When  we  do  this  we  are  really  reverting  to  the 
problem  of  barter,  in  which  the  changes  in  the  marginal  utilities  of 
both  commodities  are,  of  course,  prominent.  As  we  have  remarked, 
barter,  though  earlier  historically  than  buying  and  selling,  is  really  a 
more  complex  transaction,  and  the  theory  of  it  is  curious  rather  than 
important."  (See  Note  on  Barter,  p.  395.)  But  what  if  all  exchange 
is  barter? 

(3)  In  the  general  statement,  at  first  (p.  183),  we  are  -invited  to 
"  neglect  for  the  moment  the  fact  that  the  same  sum  of  money  repre- 
sents different  amounts  of  pleasure  to  different  people."  The  proced- 
ure is,  of  course,  logically  defensible  if  the  neglected  fact  is  afterwards 
introduced.  But  this  is  not  the  case  except  in  appearance.  First,  the 
nation  is  divided  into  three  classes  —  rich,  middle,  and  poor.  Within 
these  classes  the  units  are  supposed  to  be  similar ;  but  it  is  expressly 
stated  that  the  marginal  utility  of  money  is  very  different  in  the  three 
groups,  and  what  the  difference  is,  is  plainly  indeterminate.  Secondly, 
it  ir  maintained  that  what  is  true  of  a  composite  group  at  Leeds  would 
be  true  of  a  similar  group  at  Sheffield,  and,  for  example,  that  a  tax  of 
£1  per  head  (or  conversely  an  increase  in  income)  would,  on  the  whole, 
affect  both  groups  equally.  But  the  conclusion  is  purely  formal ;  the 


PRODUCTION.  65 

important  point  is,  that  a  tax  of  £1  per  bead  would  impose  burdens 
on  the  members  of  the  community,  varying  from  zero  to  the  pains  of 
starvation,  eviction,  beggary,  and  the  like.  The  principle  of  equality 
of  sacrifice  cannot  be  simplified  in  the  manner  supposed. 

(4)  On  page  184  (note)  it  is  stated  '  that  it  is  seldom  possible  to  get 
the  data  necessary  for  drawing  the  demand  curve  complete.'     But 
unless  the  demand  curve  is  complete  we  cannot  get  the  total  utility  or 
the  consumer's  rent ;   above  all,  we  cannot  get  the  total  utility  to  the 
community. 

(5)  On  page  503  (note)  it  is  stated:  "If,  therefore,  a  given  aggre- 
gate taxation  has  to  be  levied  ruthlessly  from  any  class,  it  will  cause 
less  loss  of  Consumer's  Rent  if  levied  on  necessaries,  than  if  levied  on 
comforts."     Logically,  class  must  here  again  mean  a  group  of  similar 
units,  and  the  argument  so  far  is  formal.     The  paradox  is  resolved 
only  at  the  expense  of  reality.     Under  the  supposition  made  of  a  ruth- 
less levy,  practically  the  best  mode  of  exaction  would  be  by  direct 
money  payments. 

As  a  matter  of  fact,  Professor  Marshall  himself,  in  criticising 
Jevons,  really  destroys  his  own  position  on  Total  Utility  and  Con- 
sumer's Rent.  (See  his  note  on  Ricardo's  Theory  of  Value ;  Principles, 
Bk.  V.,  Ch.  XIV.,  p.  538.)  Professor  Marshall  says,  for  example, 
that  "the  exchange  value  of  a  thing  is  the  same  all  over  a  market,  but 
the  final  degrees  of  utility  to  which  it  corresponds  are  not  equal  at  any 
two  parts;"  and  again,  in  conclusion,  he  writes:  "Perhaps  Jevons' 
antagonism  to  Ricardo  and  Mill  would  have  been  less,  if  he  had  not 
himself  fallen  into  the  habit  of  speaking  of  relations,  which  really  exist 
only  between  demand  price  and  value,  as  though  they  existed  between 
utility  and  value."  Professor  Marshall  seems  to  have  attempted  the 
task  of  supplying  Jevons'  theory  with  the  hypotheses  necessary  to 
make  it  true.  The  complexity  of  hypotheses  is  so  great  that  it  may 
be  expected  to  lead,  as  in  similar  cases  in  other  sciences,  e.g.,  astron- 
omy, to  the  abandonment  of  the  central  theory. 

No  expansion  of  the  formula,  *  the  more  we  have  the  less  we  want,' 
can  be  a  sufficient  substitute  for  the  enumeration  of  the  many  and 
various  actual  conditions  which  govern  the  consumption  of  wealth,  and 
the  prices  of  commodities  and  services. 


CHAPTER  IV. 

NATURE. 

§  1.  The  Functions  of  Nature  in  Material  Production. 
Nature  provides  man  with  materials  and  powers,  and 
in  every  country  natural  conditions  are  of  fundamental 
importance  in  the  production  or  acquisition  of  material 
wealth,  although,  in  some  cases,  the  importance  of  this  ele- 
ment is  apt  to  be  overshadowed  by  the  growth  of  capital 
and  the  organisation  of  labour.  The  wealth  of  Holland  in 
the  seventeenth  century,  which  was  the  marvel  of  the 
world,  was  supposed  to  have  been  acquired  in  spite  of 
natural  disadvantages ;  and  John  Law  expressed  a  common 
opinion  when  he  said :  "  If  Spain,  France,  or  Britain,  or 
any  one  of  them  had  applied  to  trade  as  early  and  upon  the 
same  measures  as  Holland  did,  Holland  would  not  have 
been  inhabited."  But  Holland  had  natural  advantages  of 
situation,  without  which  it  could  not  have  become  the 
entrepot  between  the  North  and  the  South  and  the  East 
and  the  West.  In  England,  at  the  present  time,  in  spite 
of  the  predominance  of  trade  and  manufactures,  natural 
conditions  are  of  primary  importance ;  the  coast  line  and 
rivers,  the  proximity  of  rich  coal  and  iron  fields,  the  tem- 
perate, moist  climate,  and  the  fertility  of  the  soil,  are  still 
the  foundations  of  the  wealth  of  the  nation.  To  take  a 
larger  example,  the  great  trades  of  the  world  are  carried 
on  between  regions  adapted  by  nature  for  different  kinds 
of  production. 

Man  may  modify  and  control,  but  he  can  never  dispense 
with  the  materials  and  the  powers  of  nature.  This  propo- 

66 


PRODUCTION.  67 

sition  may,  perhaps,  appear  too  obvious  to  require  explicit 
statement;  but  it  is  closely  connected  with  a  controversy 
which  for  a  long  period  attracted  much  attention,  namely, 
whether  nature  gives  more  assistance  to  labour  in  one  kind 
of  industry  or  in  another.  Locke,  in  his  Essay  on  Civil 
Government,  had  emphasised  the  paramount  importance  of 
labour  in  the  production  of  wealth.  "  I  think  it  will  be  but  a 
very  modest  computation  to  say,  that  of  the  products  of  the 
earth  useful  to  the  life  of  man,  nine-tenths  are  the  effects  of 
labour;  nay,  if  we  will  rightly  consider  things  as  they  come 
to  our  use,  and  cast  up  the  several  expenses  about  them, 
what  in  them  is  purely  owing  to  nature,  and  what  to  labour, 
we  shall  find  that  in  most  of  them  ninety-nine  hundredths 
are  wholly  to  be  put  to  the  account  of  labour."  In  this 
passage  there  is  no  doubt  a  confusion  between  value  and 
utilit}- ;  but  a  little  later  on  he  speaks  of  "  nature  and  the 
earth  as  furnishing  only  the  almost  worthless  materials 
as  in  themselves,"  and  we  may  fairly  assume  that,  in  his 
opinion,  the  utility  of  most  things  is  due  far  more  to  labour 
than  to  nature.  The  French  Economistes  or  Physiocrats 
modified  this  general  statement,  and  insisted  especially 
upon  the  conceit,  as  Mill  calls  it,  that  Nature  lends  more 
assistance  to  human  endeavours  in  agriculture  than  in 
manufactures.  Mill  himself  is  content  to  say  that  "the 
part  which  nature  has  in  any  work  of  man  is  indefinite  and 
incommensurable.  It  is  impossible  to  say  that  in  any  one 
thing  nature  does  more  than  in  any  other.  One  cannot 
even  say  that  labour  does  less."  In  the  strict  sense  of  the 
terms,  this  criticism  may,  perhaps,  be  considered  just  and 
relevant ;  but,  after  all,  that  only  amounts  to  saying  that 
the  question  has  been  badly  worded.  An  economic  dis- 
tinction, which  Adam  Smith  considered  real  and  important, 
has  probably  some  element  of  truth  in  it.  The  truth  im- 
plied may,  perhaps,  be  better  indicated  in  the  proposition 
that,  to  obtain  commodities  of  equal  utility,  different  quan- 
tities of  labour  are  necessary  according  to  variations  in 
natural  conditions.  An  obvious  and  important  example 


68  PRINCIPLES  OF  POLITICAL  ECONOMY. 

is  furnished  by  the  phenomena  on  which  economic  rent 
depends.  The  same  labour  and  capital  applied  to  different 
soils  give  different  returns  according  to  the  assistance 
afforded  by  nature. 

'I  have  discussed  this  question  in  a  separate  essay1 
from  which  the  following  illustration  is  taken.  Certain 
things  are  presented  to  man  by  nature,  without  any  labour, 
except  the  mere  labour  of  occupation,  as  it  has  been  termed. 
If  these  things  are  limited,  and  satisfy  human  wants,  they 
possess  value ;  and  this  value  in  proportion  to  the  labour  and 
capital  expended  in  their  acquirement  may  be  very  great. 
The  labour  of  acquisition  is  saved  by  nature,  or  as  Adam 
Smith  says,  nature  does  the  chief  part  of  the  work.  Capi- 
tal devoted  to  the  production  of  indigo  from  the  natural 
plants  yields  a  very  large  profit,  whilst  the  same  amount  of 
capital  applied  artificially  by  chemical  methods  will  not  pay 
its  expenses.  We  may  fairly  say  that  the  former  method 
is  more  productive  because  nature  labours  with  man. 

§  2.  Of  the  Grifts  of  Nature  some  are  practically  unlimited, 
others  limited.  The  distinction  between  the  unlimited 
and  the  limited  utilities  afforded  to  man  by  nature,  as  so 
often  happens  in  economic  classifications,  is  indicated  by 
a  line  which  varies  in  different  times  and  places.  This 
variation  appears  to  be  due  to  three  circumstances:  namely, 
the  number  of  people  who  desire  the  utility,  the  impor- 
tance they  assign  to  it,  and  the  art  or  knowledge  involved 
in  its  exploitation.  Take,  for  example,  the  typical  manor 
of  the  early  mediaeval  period.  Generally,  the  use  of  the 
common  pasture  was  without  stint,  and  so  long  as  the 
number  of  inhabitants  was  small,  and  their  means  of 
wintering  stock  unrestricted,  there  was  no  need  for  limita- 
tion even  in  the  interests  of  the  lord  of  the  manor.2  In 

1  Introductory  Essay  to  Wealth  of  Nations.    See  also  my  Tenants'1  Gain, 
Ch.  I. 

2  Thorold  Rogers'  Six  Centuries,  p.  24.    On  the  links  of  Dornoch,  in 
Sutherland,  I  am  told  that  there  is  no  limitation  to  the  number  of  horses 
and  cattle  imposed  on  the  crofters,  and  there  is  no  need  for  the  reasons 
stated  in  the  text. 


PRODUCTION.  69 

many  cases,  also,  the  use  of  wood  for  building  or  instru- 
ments or  fuel  was  also  unrestricted,  whilst,  at  the  same 
time,  the  most  savage  laws  prevented  the  pursuit  of  game 
however  abundant.  In  general,  as  is  shown  in  the  case  of 
fisheries,  forests,  commons,  and  the  like,  in  the  course 
of  industrial  progress,  the  limited  class  has  constantly 
increased  at  the  expense  of  the  unlimited.  In  rare  in- 
stances, however,  the  reverse  has  happened  through  the 
substitution  of  something  better  adapted  for  the  purpose, 
or  through  a  change  in  wants  or  desires.  The  best 
example  is  furnished  by  the  recession  of  the  "  margin  of 
cultivation  "  on  land.  In  general,  the  immediate  effect  of 
great  agricultural  improvements  is  to  make  the  cultivation 
of  some  inferior  land  no  longer  profitable.  The  economic 
result  (as  distinct  from  any  merely  legal  question  of 
appropriation)  is  that  land  passes  from  the  class  of  the 
limited  to  that  of  the  unlimited  gifts  of  nature.  A  sim- 
ilar effect  may  follow  on  the  substitution  of  one  kind  of 
produce  for  another,  land  specially  adapted  to  the  old 
produce  not  being  suitable  to  the  new. 

In  the  degradation  of  a  race,  from  a  higher  to  a  lower 
stage  of  civilisation,  the  absorption  of  the  limited  into  the 
unlimited  class  of  natural  powers  and  materials,  is  one  of 
the  best  marked  characteristics.  Lands  become  wastes  and 
cities  become  open  quarries.  The  excavations  of  the  cities 
of  dead  civilisations  show  how  completely,  under  certain 
circumstances,  nature  may  regain  the  mastery  over  man. 

In  some  cases,  however,  the  relapse  of  cultivated  land 
into  waste  seems  to  be  due  to  the  exhaustion  of  the  natural 
fertility.  In  former  times  there  were  dense  populations, 
self-supported,  in  vast  areas  of  Africa  and  Asia  Minor, 
and  even  in  certain  parts  of  Italy  and  Spain,  of  the  pro- 
ductiveness of  the  soil  of  which  we  can  at  present  discover 
only  slender  traces.1 

1  The  Earth  as  Modified  by  Human  Action. — MARSH.  Many  inter- 
esting and  detailed  examples  are  given  in  this  work  of  the  oscillations 
between  intensive  cultivation  and  arid  waste. 


70  PRINCIPLES  OF  POLITICAL  ECONOMY. 

A  second  distinction  turns  not  so  much  on  the  abundance, 
or  the  scarcity,  of  the  gifts  of  nature,  as  on  the  capability, 
or  incapability,  of  exchange  and  appropriation.  Thus  the 
light  and  warmth  of  the  sun,  and  similar  beneficial  climatic 
influences,  may  be  described  as  free  gifts  of  nature  which 
cannot  be  economised,  but  they  are  bestowed  in  very 
different  measures  upon  different  parts  of  the  world.  The 
winds  and  the  tides  are  amongst  the  most  important  motive- 
powers  ;  but  they  can  only  be  used  directly  as  nature  fur- 
nishes opportunities,  and  the  same  forces  may  at  one  time  be 
too  strong,  and  at  another  too  weak,  for  the  purpose  in  view. 

Although,  as  already  stated,  political  economy  has,  in 
general,  but  little  to  say  with  regard  to  utilities  that  do 
not  possess  the  three  economic  marks,  in  considering  the 
production  of  a  nation's  wealth,  it  is  necessary  to  take  a 
survey  of  the  principal  natural  conditions  by  which  it  may 
be  affected,  both  as  regards  its  variety  and  its  abundance. 
As  already  stated,  these  natural  conditions  are  always  of 
fundamental  importance,  although  in  general,  the  truth  is 
only  adequately  realised  on  the  occurrence  of  some  great 
catastrophe. 

§  3.  The  Natural  Constituents  in  National  Production.1 
The  most  important  elements  in  the  natural  resources 
of  nations  appear  to  be  the  following:  — 

1°.  Climate  which  affects  directly  the  vegetable  and 
animal  products,  and,  indirectly,  at  least,  the  efficiency 
of  human  labour.  Under  climate  we  have  to  consider 
the  temperature,  including  not  only  the  average  but 
the  extremes  of  heat  and  cold  in  different  times  of  the 
year,  the  moisture,  again  including  not  only  the  average 
but  varying  degrees  at  different  times,  the  direction 
and  force  of  the  winds,  and  the  healthiness  or  the  re- 
verse of  the  atmosphere.  Abundant  illustrations  of  these 
various  influences  are  given  in  works  on  commercial 
geography,2  and  the  only  difficulty  is  one  of  enumeration. 

1  Cf.  Schonberg's  Handbuch,  p.  198. 

2  See  Chisholm's  Commercial  Geography. 


PRODUCTION.  71 

2°.  The  superficial  appearance  of  the  country  introduces 
several  factors  of  importance  ;  mountains  and  plains  re- 
spectively obstruct  and  facilitate  trade ;  forests  may  in 
some  cases  retard,  in  others  accelerate  the  growth  of 
wealth ;  the  coast  may  be  indented  with  natural  harbours, 
or  unapproachable  through  rocks  and  sands. 

3°.  The  fertility  of  the  soil,  and  the  geological  formation 
of  the  earth's  crust  are  of  obvious  importance,  the  former 
as  largely  dominating  the  agricultural  production,  and  the 
latter  the  mineral  wealth  of  the  country.  The  discovery 
of  mines  has  often  transformed  a  district  within  a  few 
years  (e.g.,  the  gold  mines  of  Australia  and  California), 
and  the  virgin  soils  of  new  countries  have  thrown  out  of 
cultivation  the  less  favoured  lands  in  the  Old  World. 

4°.  Water  must  be  considered  under  several  aspects :  as 
furnishing  means  of  communication  in  lakes  or  navigable 
rivers,  as  necessitating  large  drainage  works,  as  in  the  fens 
of  England  and  Holland,  as  providing  power  for  mills,  or 
in  recent  times,  as  the  source  of  electricity. 

5°.  The  situation  of  a  particular  country,  as  regards 
the  rest  of  the  world,  and  especially  in  relation  to  the 
great  trade  routes,  has  often  been  the  principal  factor  in 
determining  commercial  supremacy. 

It  will  be  observed  that  of  these  gifts  and  powers  of 
nature,  some  (e.g.,  climatic  influences  and  natural  harbours) 
are  practically  unalterable  by  use,  others  (e.g.,  the  soil)  are 
partially  exhausted  and  renewed,  and  others  again  (e.g., 
mines)  are  gradually  exploited  without  renewal.  As  in 
most  countries  agriculture  in  some  form  is  the  most 
important  element  of  national  wealth,  the  preservation 
of  the  properties  of  the  soil  is  of  especial  importance. 
The  nature  of  various  soils,  and  the  methods  best  adapted 
for  different  cases,  can  only  be  adequately  discussed  in 
works  on  scientific  agriculture.  In  its  general  aspects, 
however,  the  subject  is  of  economic  interest,  especially 
with  reference  to  the  rent  of  land,  and  the  growth  of 
population,  and  will  be  treated  at  a  later  stage. 


CHAPTER  V. 

LABOUR. 

§  1.  Twofold  Meaning  of  Labour,  and  first  of  Subjective 
Labour.  Labour  is  used  in  two  different  senses,  which 
are  most  briefly  described  by  the  philosophic  terms,  sub- 
jective and  objective  ;  that  is  to  say,  labour  may  be  con- 
sidered, on  the  one  hand,  as  involving  a  certain  degree 
and  kind  of  feeling  on  the  part  of  the  labourer,  and  on 
the  other,  as  effecting  a  certain  result  in  doing  a  certain 
amount  of  work.  In  general,  the  nature  of  the  feeling 
involved  in  economic  labour  must  be  regarded  as  in  itself 
painful,  disagreeable,  or  irksome,  or,  at  any  rate,  as  causing 
a  sense  of  effort  and  strain.  Accordingly,  as  a  rule,  it  is 
undertaken  and  endured  with  the  view  of  some  ulterior 
object,  such  as  the  satisfaction  of  present  or  future  wants. 

In  certain  degrees  of  civilisation,  however,  the  natural 
aversion  to  labour  is  overcome  by  compulsion  and  punish- 
ment in  case  of  default.  Thus,  in  ancient  civilisations 
generally,  almost  all  the  labourers  were  slaves,  and  the 
inducement  to  work  was  the  fear  of  penalties.  In  modern 
times,  the  labour  of  children  is  more  often  the  result  of 
obedience  than  of  any  ho£e  of  reward. 

Many  economists  have  been  so  much  impressed  by  the 
hardship  of  labour,  that  they  have  explicitly  described  the 
exertion  as  essentially  painful.1  This  position,  however, 
appears  too  extreme.  A  man  in  full  vigour  of  mind  and 
body  often  takes  real  pleasure  in  his  work,  and  certainly 
would  find  idleness  irksome.  Again,  most  writers  have 
1  Cf.  Jevoiis'  Theory,  Ch.  VIII.,  p.  163  ;  and  see  his  curve,  p.  168. 

72 


PRODUCTION.  73 

followed  Adam  Smith  in  mentioning,  amongst  the  causes 
of  differences  of  wages  and  profits,  not  only  the  disagreea- 
bleness,  but  the  agreeableness  of  the  employment.  They 
have  agreed,  also,  with  him,  that  honour  forms  the  greater 
part  of  the  reward  of  all  honourable  professions ;  and,  in 
most  cases,  this  honour  is  coincident  with  the  labour,  and 
is  not  of  the  nature  of  an  order  of  merit  bestowed  like 
wages  at  the  end  of  a  certain  period. 

On  the  other  hand,  Fourier  and  his  followers  have 
attempted  to  prove  that,  if  work  were  properly  distributed, 
it  should  always  be  directly  pleasurable.  Under  existing 
conditions,1  however,  as  in  the  past,  there  is  no  doubt  that 
the  mere  pleasure  of  working  would  be  quite  inadequate 
even  to  carry  on  with  efficiency  the  most  honourable  of 
regular  employments.  "  In  England,"  says  Adam  Smith,2 
"success  in  the  profession  of  the  law  leads  to  some  very 
great  objects  of  ambition  ;  and  yet  how  few  men  born 
to  easy  fortunes  have  ever  in  this  country  been  eminent 
in  that  profession."  It  seems  to  be  only  in  the  realm  of 
sports,  and  not  often  there,  that  the  amateur  is  equal  to 
the  professional ;  and  this  is  only  another  way  of  saying 
that  the  mere  pleasure  of  work  is  seldom  sufficient  to 
secure  the  greatest  proficiency. 

§  2.  Quantity  of  Labour  (Subjective)  explained.  "  It  is 
often  difficult  to  ascertain  the  proportion  between  two 
quantities  of  labour.  The  time  spent  in  two  different  sorts 
of  work  will  not  always  alone  determine  this  proportion. 
The  different  degrees  of  hardship  endured,  and  ingenuity 
exercised,  must  likewise  be  taken  into  account.  There 
may  be  more  labour  in  an  hour's  work  than  in  two  hours' 
easy  business.  .  .  .  The  greater  part  of  people  understand 
better  what  is  meant  by  a  quantity  of  a  particular  com- 
modity than  by  a  quantity  of  labour.  The  one  is  a  plain, 
palpable  object ;  the  other  an  abstract  notion  which,  though 
it  can  be  made  sufficiently  intelligible,  is  not  altogether 

1  See  H.  Sidgwick's  Principles,  p.  526. 
-  Adam  Smith,  Bk.  V.,  Chs.  I.  and  II. 


74  PRINCIPLES  OF  POLITICAL  ECONOMY. 

so  natural  and  obvious." 1  Although  it  may  prove  to  be 
impossible  to  obtain  any  accurate  or  even  adequate  meas- 
ure of  'quantity  of  labour '  in  this  sense,  it  is  quite  possible 
to  point  out  the  causes  by  which  it  is  determined,  and  the 
influences  according  to  which  it  varies.  And  this,  indeed, 
is  one  of  the  most  important  inquiries  in  political  economy ; 
for,  since  the  object  of  all  production  is  utility,  and  since 
the  greater  part  of  labour  in  the  subjective  sense  must  be 
regarded  as  of  negative  utility  to  the  worker,  it  is  always 
necessary  to  strike  a  balance  in  order  to  arrive  at  the  net 
advantage.  This  idea  is  at  the  root  of  the  popular  saying 
that  a  thing  or  an  action  may  be  more  trouble  than  it  is 
worth.  A  savage  gathering  shell-fish  must  decide  when 
the  pain  of  acquisition  outweighs  the  pleasure  of  consump- 
tion, and  in  modern  industrial  societies  a  similar  computa- 
tion is  only  hidden  by  the  intervention  of  money.  To  take 
a  simple  case,  the  man  who  works  by  the  piece,  e.g.,  a 
stone-breaker,  must  consider  whether  it  is  worth  his  while 
to  earn  another  sixpence,  and  the  time-worker,  under  a 
system  of  real  freedom  of  contract,  must  solve  a  similar 
problem  with  regard  to  his  hours  of  labour. 

The  general  treatment  of  the  conception  and  the  meas- 
urement of  a  quantity  of  labour  involve  precisely  the 
same  difficulties  as  are  found  in  the  case  of  utility.  Some 
German  writers  have  attempted  to  construct  a  unit  of 
measurement  in  the  expenditure  of  life-force,  and  others 
have  tried  to  express  other  forms  of  labour  as  equivalent 
to  so  much  unskilled  labour.  Such  methods  of  computa- 
tion, however,  seem  to  be  purely  hypothetical.  In  the 
disutility  of  labour,  as  in  the  utility  of  consumption,  we 
cannot  get  beyond  the  enumeration  of  the  principal  causes 
and  conditions  of  variation.  In  the  same  way,  with  regard 
to  the  efficiency  of  labour,  it  is  theoretically  conceivable 
that  it  might  be  measured,  like  other  forms  of  energy,  in 
foot-pounds.  But  any  one  who  makes  the  attempt  to  express 

1  Adam  Smith,  Bk.  I.,  Ch.  V.  See  also  my  Effects  of  Machinery  on 
Wages,  Introduction. 


PRODUCTION.  75 

the  efficiency  of  different  kinds  of  labour  in  this  manner 
will  soon  learn  to  be  content  with  -the  imperfect  methods 
of  general  description.  The  next  two  sections  are  accord- 
ingly devoted  to  an  examination  of  the  principal  causes  of 
variation  in  the  quantity  of  labour  (subjective),  and  the 
efficiency  of  labour  (objective). 

§  3.  Causes  of  Variations  in  the  Quantity  of  Labour 
(Subjective').  I.  Time.  The  most  important  element  in 
the  quantity  of  labour  is,  in  general,  time;  that  is  to  say, 
the  irksomeness  of  work,  or,  technically,  the  negative  util- 
ity of  labour,  varies  with  the  time  during  which  the  labour 
takes  place.  Speaking  roughly,  we  may  say  that  there  is 
six  times  as  much  labour  in  a  working  week  as  in  a  day, 
and  fifty-two  times  as  much  in  a  year  as  in  a  week.  But 
even  when  we  consider  time  only,  the  relation  is  not  gener- 
ally one  of  such  simple  multiplication. 

In  beginning  to  work,  whether  with  the  mind  or  body, 
there  is  at  first  a  greater  sense  of  effort  than  after  the 
lapse  of  a  certain  time ;  then  comes  a  period  in  which  this 
element  of  disagreeableness  is  tolerably  constant,  and  in 
which  the  disutility  is  often  rather  neutral  than  positive ; 
but  as  soon  as  the  physical  or  mental  strength  is  partially 
exhausted  there  is  a  very  rapid  increase  in  this  disutility. 
The  quantity  of  labour,  for  example,  in  the  twelfth  hour, 
is  far  greater  as  a  rule  than  that  in  the  second.  After  a 
certain  lapse  of  time,  indeed,  no  amount  of  future  benefit 
would  be  considered  a  sufficient  recompense  for  the  depri- 
vation of  sleep.1 

II.  Intensity.  In  conjunction  with  time  we  must  take 
into  account  the  intensity  of  the  labour.  As  Adam  Smith 
said :  '  there  may  be  more  labour  in  an  hour's  hard  work 
than  in  two  hours'  easy  business.'  Here,  again,  it  is  plain 
that  the  disutility  increases  very  rapidly  after  a  certain 
degree  of  intensity  is  reached.  To  do  in  an  hour  what 
would  naturally,  or  normally,  take  two  hours,  would 

1  In  the  extreme  case  of  overwork  we  may  speak  of  the  infinite  dis- 
utility of  being  dead,  as  corresponding  to  the  infinite  utility  of  being  alive, 
due  to  the  first  results  of  work. 


76  PRINCIPLES  OF  POLITICAL  ECONOMY. 

involve  far  more  than  twice  the  quantity  of  labour,  or,  in 
other  words,  the  strain  on  mind  and  body  would  be  pro- 
portionately greater.1 

III.  Preparation.     Under   the    quantity   of   labour   in- 
volved in  any  piece  of  work,  we  ought  logically  to  include 
(as  certainly  every  school-boy  knows  in  his  own  case)  all 
the  preparation  that  may  previously  be  necessary.    Thus,  in 
the  labour  of  the  professional  man,  we  ought  to  take  account 
of  the  time  and  trouble  involved  in  qualifying  for  the  pro- 
fession.   Adam  Smith  seems  then  to  be  perfectly  justified  in 
saying  that  there  '  is  more  labour  in  an  hour's  application 
to  a  trade  which  it  costs  ten  years'  labour  to  learn  than  in 
a  month's  industry  at  an  ordinary  or  obvious  employment.' 

IV.  General  conditions.     We  must  take  into  account 
also  the  conditions  under  which  the  work  is  done,  and,  in 
many  cases,  not  only  the  physical  and  sanitary  but  the 
mental  and  moral  surroundings.     The  importance  of  the 
element  is  seen  from  the  reflection  that  a  large  part  of 
the  lives  of  all  who  work  is  spent  in  doing  that  work.     In 
the  language  of  the  biologists  we  must  consider  the  whole 
environment  of  the  worker. 

V.  Special   conditions.      In   addition   to   these   general 
causes  of  variation  in  the  quantity  of  labour,  in  every  case 
there  are  certain  special  causes  connected  with  the  nature 
of  the   employment.     Some  idea  may  be  formed  of  the 
variety  and  complexity  of  these  causes  in  the  production  of 
material  wealth   by  ordinary  labour,  if  we   look   at   the 
remedies  for  special  evils  provided  by  factory  and  other 
legislation.     An   excellent   summary   of   the   varieties  of 
conditions  affected  by  the  present  laws  of  England  is  given 
by  Mr.  John  Morley.2 

VI.  Duration  of  power  to  labour.     If  we  take  as  our  unit 
of  time  not  the  hour,  or  the  day,  but  the  average  duration 

1  Compare  in  racing  or  rowing  the  same  distances  covered  in  different 
times. 

2  Life  of  Cobden,  Vol.  I.,  p.  303.     Cf.  also  Effects  of  Machinery  on 
Wages,  Ch.  III.     Cf.  infra,  Bk.  II.,  Ch.  XI. 


PRODUCTION.  77 

of  life  in  various  occupations,  we  may  regard  quantity  of 
labour  as  involving  the  expenditure  of  a  certain  amount  of 
'life-force.'  The  importance  of  this  consideration  can  only 
be  realised  by  referring  to  the  returns  of  the  death-rate  in 
different  employments.1 

Without  anticipating  the  problem  of  the  determination 
of  wages,  we  are  able  at  once  to  deduce  certain  practical 
conclusions.  In  the  first  place,  it  is  plain  that  a  general 
eight  hours'  day  would  by  no  means  involve  a  correspond- 
ing uniformity  in  the  real  strain  of  labour.  Secondly, 
especially  with  regard  to  the  higher  forms  of  labour,  the 
intensity  of  labour  is  of  primary  importance.  It  is  more 
than  doubtful  whether  it  is  desirable  that  when  people 
work  "  they  should  do  it  with  all  their  might  and  especially 
with  all  their  mind," 2  even  when  the  advice  is  qualified 
with  the  addition  "  that  they  should  devote  to  labour,  for 
mere  pecuniary  gain,  fewer  hours  in  the  day,  fewer  days  in 
the  year,  and  fewer  years  of  life."  The  constant  high 
pressure  of  modern  life  is  associated  with  great  evils,  both 
physical  and  mental.  The  economic  waste  involved  in 
overwork  was  well  brought  out  by  Eden.3  "  Any  system 
of  employment,  therefore,  that  drives  a  man  to  perpetual 
labour  (for  that  may  fairly  be  called  perpetual  which  ad- 
mits only  of  the  intervals  required  for  sleep  and  meal- 
times), subjects  him  to  the  evils  of  the  savage  state.  When 
the  desire,  however,  of  the  artifical  conveniences  and  enjoy- 
ments of  life  are  once  introduced  into  a  society,  there 
seems  to  be  a  greater  danger  of  a  man's  overworking  him- 
self than  of  his  remaining  idle,  unless  he  has  some  other 
fund  than  his  own  industry  to  look  to.  It  is  justly  re- 
marked (by  Adam  Smith) 4  that  masters  have  rather 
occasion  to  moderate  than  to  animate  the  application  of 
their  workmen."  Thirdly,  the  philanthropic  and  laud- 

1  These  conditions  are  further  discussed  in  the  chapter  on  Division  of 
Labour.  2  Mill,  Bk.  I.,  Ch.  VII.,  p.  3. 

8  State  of  the  Poor,  Vol.  I.,  p.  444. 
4  Wealth  of  Nations,  Bk.  L,  Ch.  VIII. 


78  PRINCIPLES   OF  POLITICAL  ECONOMY. 

able  desire  to  provide  pensions  for  the  aged  poor  would, 
if  carried  into  effect,  seem  to  require  equitably  a  speedy 
and  vast  extension.  For,  if  under  the  strain  of  work 
caused  by  the  unremitting  energy  of  machinery,  or  under 
the  pressure  of  general  industrial  conditions,  a  worker 
becomes  prematurely  aged,  equitably,  he  seems  even  better 
entitled  to  consideration  than  the  person  who  has,  on  the 
whole,  run  his  race  more  easily. 

§  4.  The  Efficiency  of  Labour  (Objective').  Labour,  how- 
ever, must  be  considered  also  from  the  point  of  view  of 
productive  power,  or,  in  other  words,  we  must  pass  from 
the  subjective  to  the  objective  side.  Here  again  we  observe 
certain  general  and  certain  special  characteristics,  the 
former  embracing  all  kinds  of  labour,  from  the  lowest  to 
the  highest,  and  the  latter  varying  to  a  large  extent  with 
different  employments. 

Of  the  general  characteristics  the  most  important  affect- 
ing the  individual  labourer,  for  it  is  convenient  to  treat 
separately  the  combination  and  organisation  of  labour,  are : 

I.  Qualities  of  race  :  physical,  intellectual,  and  moral. 
All  economists l  have  noted  the  contrast  between  the  steady 
perseverance  of  the  English  race  and  the  indolence  and 
want  of  energy  and  foresight  of  most  of  the  native  races 
with  which  they  have  come  in  contact.  The  general 
acceptance  of  the  theory  of  evolution,  and  especially  of  the 
principle  of  heredity,  as  well  as  the  discoveries  by  anthro- 
pologists of  great  physical  differences  in  different  races, 
have  tended  to  strengthen  the  emphasis  laid  upon  this 
element  of  efficiency.  It  is  necessary  to  observe,  therefore, 
that  it  is  easily  capable  of  gross  exaggeration.2  The  indo- 

1  According  to  Adam  Smith,  almost  the  only  advantage  conferred  on 
the  colonies  by  the  mother  country  is  given  in  the  expression,  '  Magna 
virum  mater.1 

2  Cf.  Sir  A.  Mitchell's  Past  in  the  Present,  passim.      "The  skulls  and 
brains  of  the  fossil  man,  that  is  of  the  earliest  man  we  know  anything 
about,  appear  to  have  been  as  good  as,  if  not  better  than,  the  skulls  and 
brains  belonging  to  individuals  living  in  the  highest  state  of  civilisation." 
P.  175. 


PRODUCTION.  79 

lence  and  improvidence  of  the  Celtic  crofters  are  too  often 
set  down  to  racial  character,  regardless  of  the  fact  that  the 
same  people  have  formed  excellent  emigrants  to  new 
colonies.  It  seems  probable  also  that,  in  one  or  two 
generations,  the  natives  of  temperate  regions  lose  their 
characteristic  energy  when  located  in  the  tropics.  Yet  it 
cannot  be  maintained  that  a  hot  climate  in  itself  is  fatal  to 
energy,  nor  have  the  northern  races  always  taken  the  lead 
in  industry,  science,  and  art.  In  antiquity,  China,  Egypt, 
Greece,  and  Italy,  to  take  the  most  obvious  examples, 
attained  a  high  degree  of  civilisation,  whilst  the  temperate 
regions  were  peopled  by  barbarians ;  after  the  fall  of  the 
Roman  Empire  civilisation  probably  owed  most  to  Arabian 
influences ;  and  the  industrial  supremacy  of  England  and  of 
the  English  race,  if  we  measure  by  centuries,  has  been  only 
recently  established.  As  a  matter  of  fact,  what  is  hastily 
ascribed  to  race  is  often  due  to  influences  of  quite  a  different 
character.1 

II.  The  supply  of  food,  and  generally  of  the  necessaries 
of  life,  has  an  important  bearing  especially  on  manual 
labour.  Some  interesting  facts  on  this  topic  were  collected 
by  Mr.  Brassey,  the  contractor  for  some  of  the  principal 
railways  in  different  countries.2  It  was  shown,  in  many 
cases,  that  the  comparative  inefficiency  of  foreign  labour 
was  due  to  inferior  food,  the  more  generous  living  of  the 
English  navvy  being  conducive  to  much  greater  energy. 
A  striking  illustration  was  furnished  by  the  different  scales 
of  wages  paid.  Many  other  examples  might  be  quoted  of 
the  paradox  that  cheap  labour  is  dear  labour.  The  truth  im- 
plied was  understood  and  acted  on  in  respect  to  labouring 
cattle  long  before  it  was  thought  of  in  respect  to  labouring 
men.3  The  difficulty  is,  as  often  pointed  out,  that  with 
free  labour  the  labourer  is  lord  of  himself,  and  the  em- 
ployer is  not  so  sure  of  how  much  it  will  profit  him  as  he 
is  in  the  case  of  his  horses.  There  is,  however,  no  doubt 
that  manual  labour,  degraded  by  physical  want,  is  most  in- 

1  See  Walker's  Wages  Question.      2  Work  and  Wages.      3  Walker. 


80  PRINCIPLES  OF  POLITICAL   ECONOMY. 

efficient.  With  respect  to  the  higher  grades  of  labour  this 
element  is  of  minor  significance,  as  the  earnings  make  the 
mode  of  living  a  matter  of  choice.  In  general  the  style  of 
living,  at  least  in  northern  climes,  of  those  who  can  afford 
it,  errs  on  the  side  of  excess. 

III.  Sanitary  conditions  are  often  of  primary  importance, 
not  only  as  regards  the  actual  work,  but  the  dwelling- 
place.     The  advantages  of  fresh  air,  warmth,  and  light  are 
too  obvious  to  be  pointed  out,  though  not  sufficiently  obvi- 
ous to  be  generally  heeded.1     A  recent  Royal  Commission 
showed  that,  in  Glasgow  and  many  other  cities,  workers 
preferred  their  one-roomed  houses  in  the  centre  of  the  city, 
in  spite  of  facilities  for  travelling  to  the  suburbs,  where 
rents  were  lower  and  accommodation  superior.     In  most 
of  our  villages,  the  elements  of  sanitation  are  utterly  neg- 
lected, whilst  the  condition  of  the  cellar  population   in 
cities  is  probably  worse  than  that  of  the  cave-dwellers  of 
pre-historic  times. 

IV.  The  intellectual  ability,  natural  and  acquired,  of  the 
labourer  is  of  importance,  even  in  the  lower  grades.     In 
agriculture,  for  example,  and  in  other  industries,  machin- 
ery cannot  be  used,  and  various  processes  cannot  be  tried, 
simply  because  of  the  stupidity  of  the  workers.     The  pain 
of  a  new  idea,  as  Bagehot  called  it,  is  too  much  for  them  ;  if 
they  had  their  way,  they  would  lapse  into  the  caste  system 
of  the  East.     With  the  enormous  use  of  mechanical  appli- 
ances general  intellectual  ability,  contrary  to  what  is  some- 
times supposed,  is  of  increasing  importance  on  the  whole.2 
In  all  the  higher  grades  of  labour  this  factor  is  predominant, 
for  in  these  the  mind  is  the  real  instrument  of  production. 

V.  The  moral  activities  and  capacities  are  qualitatively 
of  equal  importance  with  the  purely  intellectual,  but  the 
difference  in  degree  is  not  generally  so  striking.     In  the 

1  In  Scotland,  as  a  whole,  very  nearly  a  third  of  the  population  live 
in  houses  of  one  room,  more  than  two-thirds  in  houses  of  one  or  two 
rooms,  and  nearly  nine-tenths  in  houses  of  four  rooms  and  under. 

2  Effects  of  Machinery  on  Wages,  Ch.  III. 


PRODUCTION.  81 

economics  of  modern  industry  most  stress  is,  as  a  matter  of 
fact,  laid  upon  self-regarding  motives ;  and,  until  recently, 
this  emphasis  was  also  observed  in  economic  theory.  "  I 
have  never  known,"  said  Adam  Smith,  "  much  good  done 
by  those  who  affected  to  trade  for  the  public  good.  It  is 
an  affectation,  indeed,  not  very  common  among  merchants, 
and  very  few  words  need  be  employed  in  dissuading  them 
from  it."  And  in  a  later  portion  of  his  work  (which  has, 
unfortunately,  dropped  out  of  the  systematic  treatment  of 
most  of  his  successors)  Adam  Smith  applies  the  same  prin- 
ciples to  the  highest  grades  of  labour,  including  all  the 
professions. 

That  the  efficiency  of  labour  varies  according  to  the 
expectation  of  reward,  and  the  security  of  enjoying  of 
that  reward,  is,  perhaps,  both  for  present  practical  pur- 
poses, and  for  the  explanation  of  past  historical  conditions 
and  revolutions,  the  most  important  principle  of  political 
economy.  And  it  is  of  especial  importance  at  the  present 
time,  when  the  criticism  of  old  doctrines  is  giving  an  ex- 
aggerated prominence  to  exceptions  which  had  previously 
been  too  much  neglected.  The  aversion  to  regular,  steady, 
monotonous  labour  —  the  kind  of  labour  which  distin- 
guishes the  civilised  man  from  the  savage  who  is  only 
capable  of  short  outbursts  —  requires  to  be  met  with  an 
equally  constant  inducement  to  work,  or,  in  current  eco- 
nomic language,  the  negative  utility  must,  at  least,  be  bal- 
anced by  a  corresponding  positive  utility.  Common  sense 
morality,  altogether  apart  from  the  sanctions  of  positive 
law,  suffices  with  the  great  mass  of  a  nation  to  enforce  the 
fulfilment  of  what  are  pronounced  to  be  the  ordinary  obli- 
gations of  social  life  ;  but  from  the  point  of  view  of  common 
sense,  a  man  who  does  any  work  for  a  less  price  than  his 
services  will  command  is  considered  either  an  enthusiast, 
or  a  fool,  and  if  he  has  others  dependent  upon  him,  the 
condemnation  is  more  sevece.  The  minister  of  religion 
and  the  minister  of  politics,  the  teacher,  the  physician, 
the  lawyer,  the  author,  and  the  artist,  one  and  all  —  if  we 


82  PRINCIPLES   OF  POLITICAL  ECONOMY. 

take  the  average  type  —  need  the  spur  of  self-interest  to 
surmount  the  ordinary  drudgery  of  their  calling.  Being 
ordinary  men  and  not  brutes,  they  are  on  various  occa- 
sions moved  by  other  impulses,  just  as  a  few  of  their 
extraordinary  fellows  are  constantly  so  moved.  When, 
however,  Christianity  itself,  dispassionately  regarded  by 
the  economist,  finds  its  earthly  support  in  earthly  rewards 
and  honours,  how  can  it  be  expected  or  maintained  that 
a  substitute  for  self-interest  can  be  found  for  the  ordinary 
business  of  life  ?  The  appeal  to  history  is  still  more 
decisive,  as  showing  that  the  main-spring  of  economic 
progress  has  been  economic  interest.  In  this  progress 
there  has  been  no  more  powerful  influence  than  the  sub- 
stitution of  free  labour  for  slavery.  Regardless  of  the 
fact  that  in  the  most  advanced  Christian  nations,  slavery 
survived  down  to  the  present  century,  its  abolition  has 
been  ascribed,  on  the  ground,  apparently,  that  what  ought 
to  have  been  must  have  been,  to  the  spread  of  Christianity. 
But  the  most  active  cause  of  this  abolition  is  to  be  found, 
not  in  the  so-called  higher,  but  in  the  so-called  lower 
nature  of  man.  It  was  the  discovery,  not  that  Christ  had 
proclaimed  the  equality  of  men,  but  that  freedom  and 
rewards  were  more  efficient  than  slavery  and  punishments 
in  calling  forth  the  energies  of  labour.  The  Romans  were 
indifferent  to  cruelty,  except  so  far  as  in  their  sports  they 
regarded  it  as  a  pastime.  "It  is  very  possible,"  says 
Mommsen,1  "that  compared  with  the  sufferings  of  the 
Roman  slaves,  the  sum  of  all  negro  suffering  is  but  a  drop ; " 
he  refers  particularly  to  the  system  of  agrarian  slavery,2  — 
"the  plantation  system  proper, — the  cultivation  of  the  fields 
by  a  band  of  slaves  not  unfrequently  branded  with  iron, 
who,  with  shackles  on  their  legs,  performed  the  labours 
of  the  field  under  the  overseers  during  the  day,  and  were 
locked  up  by  night  in  the  common,  frequently  subterra- 
nean, labourers'  prison."  But  the  Romans  discovered 

1  History  of  Home,  Vol.  III.,  p.  80  (translation). 
*  Ibid.,  Vol.  III.,  p.  79. 


PRODUCTION.  83 

that  coloni,1  of  which,  perhaps,  the  most  intelligible  trans- 
lation is  serfs,  were  more  efficient  labourers  than  slaves. 
In  the  same  way,  in  the  mediaeval  period,  the  villeins  were, 
by  a  series  of  tentative  experiments,  converted  into  small 
tenant  farmers  or  proprietors.*  It  is  true  that  the  lead 
in  this  gradual  emancipation  appears  to  have  been  taken 
by  the  churchmen ;  but  it  must  be  remembered  that  they 
were  very  large  land-owners,  and  that  they  also  took  the 
lead  in  all  kinds  of  agricultural  improvements,  as  for 
example,  in  sheep-breeding.  "  The  experience  of  all  ages 
and  nations,  I  believe,"  says  Adam  Smith,3  "  demonstrates 
that  the  work  done  by  slaves,  though  it  appears  to  cost 
only  their  maintenance,  is  in  the  end  the  dearest  of  any. 
.  .  .  The  planting  of  sugar  and  tobacco  can  afford  the 
expense  of  slave  cultivation.  The  raising  of  corn  it  seems 
in  the  present  times  cannot.  In  the  English  colonies,  of 
which  the  principal  produce  is  corn,  the  far  greater  part 
of  the  work  is  done  by  free  men.  The  late  resolution 
of  the  Quakers  in  Pennsylvania,  to  set  at  liberty  all  their 
negro  slaves,  may  satisfy  us  that  their  number  cannot 
be  very  great.  Had  they  made  any  considerable  part  of 
their  property,  such  a  resolution  could  never  have  been 
agreed  to." 

A  recent  example,  of  the  increase  of  the  efficiency  of 
labour  with  the  increase  in  its  reward,  is  furnished  by 
Profit-Sharing.  Here  the  central  idea,  from  the  production 
point  of  view,  is  simply  that  under  the  stimulus  of  a  share 
in  the  profits,  the  workers,  through  increased  efficiency 
and  care,  really  create  the  profits  which  they  are  to  re- 
ceive. When  this  form  of  industry  has  been  most  suc- 
cessful, it  has  always  been  founded  on  this  purely  business 
principle.4  Other  elements  are  no  doubt  present,  but  the 
economic  foundation  is  an  increase  of  efficiency  under 
the  spur  of  increased  interest. 

1  Adam  Smith,  Bk.  III.,  Ch.  2. 

2  Seebohm's  English  Village  Community. 

3  See  McCulloch's  Edition,  p.  172.  4  Oilman's  Profit-Sharing. 


84  PRINCIPLES  OF  POLITICAL  ECONOMY. 

It  does  not  seem  necessary  to  give  further  positive 
illustrations  of  a  principle,  which,  throughout  this  work, 
will  be  constantly  forced  on  the  attention.  One  more 
example,  however,  may  be  offered  from  the  negative  side 
which  deserves  notice  at  the  present  time.  In  1853,1  a 
considerable  number  of  the  Parochial  Boards  of  Scotland 
had  become  desirous  of  devising  some  plan  for  the 
employment  of  the  partially  disabled  poor,  and  it  was 
supposed  that  agriculture  offered  the  best  means.  It 
was  believed  that  the  Pauper  Colonies  of  Holland 
afforded  a  good  model.  Accordingly,  Sir  John  McNeill 
paid  a  visit  to  Holland,  and  made  a  report.  He  found 
that  the  free  colonies  (i.e.,  those  formed  for  the  indigent 
of  good  character),  after  a  trial  of  30  years,  were  a  com- 
plete failure.  The  most  intelligent  of  the  officers  were 
of  opinion,  that  even  if  the  colonists  had  been  selected 
from  the  class  of  agricultural  peasants,  the  colonies  could 
not  have  been  made  self-sufficing,  so  long  as  maintenance 
was  secured  to  the  colonists,  irrespective  of  what  was 
produced  by  themselves.  "  The  failure  of  an  experiment, 
conducted  with  so  much  care,  by  men  of  the  highest  in- 
telligence, with  means  so  large,  supported  by  the  govern- 
ment and  the  nation,  established  on  a  scale  so  extensive,  and 
persevered  in  for  so  many  years,  among  a  people  remark- 
able for  business  habits,  agricultural  skill,  and  industry, 
is  a  valuable  lesson." 

As  for  the  sturdy  rogues  and  vagabonds,  who  were  pro- 
vided for  in  similar  penal  colonies,  —  in  spite  of  the  fact 
that  '  means  of  coercion  were  used,  which  would  not  be 
lawful  in  Scotland,' — it  was  estimated  that  it  required 
fifteen  of  them  to  perform  the  field  work  of  one  good  day 
labourer.2 

In  emphasising  the  influence  of  self-interest  upon  the 
efficiency  of  labour,  I  must  not  be  understood  to  use  the 

1  History  of  the  Scotch  Poor  Law,  by  Sir  George  Nicholls,  Vol.  I.,  p.  272. 

2  See  also  Bancroft's  History  of  the  United  States,  Ch.  V.,  on  Sla- 
very. 


PRODUCTION.  85 

term  in  a  narrow,  technical  sense.  The  exact  demarcation 
of  the  scientific  frontier  between  self-regarding  and 
altruistic  motives  is  a  problem  in  metaphysical  ethics 
that  has  not  yet  been,  and  probably  never  will  be,  deter- 
mined. Whether  the  labourer  who  gives  the  greater  part 
of  his  wages  to  his  wife  and  family,  instead  of  spending 
them  on  drink  or  tobacco,  promotes  their  economic  in- 
terests more  than  his  own  is,  from  the  present  stand- 
point, a  purely  verbal  question.  Much  ingenious  criticism 
has  been  directed  against  Adam  Smith,  which  would  never 
have  been  written  if  his  words  had  been  construed  accord- 
ing to  the  plain  meaning  of  the  general  argument  of  his 
whole  work,  instead  of  being  tested  by  rigid  and  arbitrary 
definitions. 

At  the  same  time  it  would  be  equally  futile  and  mis- 
leading to  assume  that  because  there  is  a  debatable 
margin,  there  is  no  real  difference  between  the  conscious 
promotion  of  private  and  of  public  interest.  The  difference 
is  both  real  and  palpable,  whether  or  not  the  final  result 
may  be  the  same.  For  my  own  part,  in  the  main,  I  follow 
the  older  writers  in  thinking  that  the  great  majority  of 
people  will  do  most  good  to  the  public  by  minding  their 
own  business. 

I  cannot  agree  with  Professor  Marshall,  when  he  writes: 
"  Thus  the  struggle  for  existence  causes,  in  the  long  run, 
those  races  of  men  to  survive  in  which  the  individual  is 
most  willing  to  sacrifice  himself  for  the  benefit  of  his 
environment;  and  which  are,  consequently,  the  best  adapted 
collectively  to  make  use  of  this  environment." l  There  is 
much  more  truth  in  my  opinion  in  the  frank  avowal  of  Sir 
James  Steuart:  "It  might,  perhaps,  be  expected  that  in 
treating  of  politics,  I  shall  have  brought  in  public  spirit, 
etc.,  as  a  principle  of  action ;  whereas,  all  I  require  with 
respect  to  this  principle,  is  merely  a  restraint  from  it; 
and  even  this  is  perhaps  too  much  to  be  taken  for  granted. 
Were  public  spirit  instead  of  private  utility  to  become  the 
1  Principles,  p.  302. 


86  PRINCIPLES  OF  POLITICAL  ECONOMY. 

spring  of  action  in  the  individuals  of  a  well-governed  State, 
I  apprehend  it  would  spoil  all.     Let  me  explain  myself." 1 

1  For  the  explanation,  the  reader  must  refer  to  our  author  himself, 
who  is  still,  in  many  ways,  as  fresh  and  suggestive  as  Adam  Smith.  It 
is,  perhaps,  hardly  necessary  to  say  that  the  principle  needs,  and  later  on 
will  receive,  qualification.  But  as  regards  the  efficiency  of  labour  of  all 
kinds,  the  meaning  is  plain.  To  guard,  however,  against  the  injustice  of 
mutilated  quotation,  one  other  sentence  may  be  added:  "Public  spirit, 
in  my  way  of  treating  the  subject,  is  as  superfluous  in  the  governed  as  it 
ought  to  be  all  powerful  in  the  statesman  ;  at  least,  if  it  is  not  altogether 
superfluous,  it  is  fully  as  much  so  as  miracles  are  in  a  religion  once  fully 
established  .  .  .  Were  miracles  wrought  every  day,  the  laws  of  nature 
would  no  longer  be  laws  ;  and  were  every  one  to  act  for  the  public  and  to 
neglect  himself,  the  statesman  would  be  bewildered,  and  the  supposition 
is  ridiculous." 


CHAPTER   VI. 

CAPITAL. 

§  1.  Definition  of  Capital,  and  first  of  Revenue  Capital. 
There  is  probably  no  term  in  economics  which  has  given 
rise  to  so  much  controversy  as  capital,  and  in  the  limits  of 
this  chapter  it  will  only  be  possible  to  indicate  the  main 
points  in  dispute,  and  their  bearing  upon  fundamental 
questions.  As  usual,  the  historical  aspect  of  the  subject 
has  been  treated  most  fully  by  German  writers.1  The 
word  capital  is  connected  with  caput,  and,  in  mediae val 
Latin,  we  read  constantly  of  the  capitalis  pars  debiti,  i.e., 
the  principal  sum  as  distinct  from  the  interest.  Thus, 
originally,  the  term  seems  to  have  been  confined  to  loans 
of  money.  As  the  church  forbade  the  lending  of  money 
for  interest,  or  usury,  as  it  was  then  called,  and  as  this 
moral  prohibition  was  generally  given  effect  to  by  the  law, 
all  sorts  of  devices  were  resorted  to  in  order  to  disguise 
the  real  nature  of  a  loan.  A  thing  was  nominally  bought 
by  the  borrower,,  to  be  sold  back  after  a  time  at  a  lower 
price  to  the  lender  (a  dry  bargain,  as  it  was  termed,  the 
difference  really  being  interest),  and,  gradually,  exceptions 
were  admitted  on  the  ground  of  wear  and  tear  of  the 
thing  lent,  or  of  some  indirect  loss  to  the  lender.2 

1  Compare  the  masterly  introduction  of  Knies  to  his  work  on  Money 
and  Credit  (Geld  und  Credit) ;  Kapital   und  Kapital-Zins,  by  Bohm- 
Bawerk,  translated  by  R.  Smart ;  and  the  article  on  Capital,  in  Schon- 
berg's  Handbuch.     In  this  chapter  I  have  reproduced  part  of  my  article 
on  Capital  in  Palgrave's  Dictionary. 

2  See  Cunningham's  Growth  of  English  Industry  and  Commerce,  pp. 
236-40  for  an  account  of  damnum  emergens,  lucrum  cessans,  and  pericu- 
l  urn  sort  is.    Also  my  art.  Usury,  in  Ency clop.  Britt.    The  point  is  discussed 
more  fully  below.     Bk.   II.,  Ch.  XIII.,  §  3.    The  excellent  account  of 
Canon  Laic  by  Professor  Ashley,  Economic  History,  Vol.  II.,  appeared 
too  late  for  quotation. 


88  PRINCIPLES  OF  POLITICAL  ECONOMY. 

The  elaborate  theory  of  interest  propounded  by  Dr. 
Bohm-Bawerk  is  essentially  a  development  of  the  dry 
bargain.  "  What,  then,  are  the  capitalists  as  regards  the 
community  ?  In  a  word,  they  are  merchants  who  have 
present  goods  to  sell.  They  are  the  fortunate  possessors 
of  a  stock  of  goods  which  they  do  not  require  for  the  per- 
sonal needs  of  the  moment.  They  exchange  this  stock, 
therefore,  into  future  goods  of  some  form  or  another,  and 
allow  them  to  ripen  in  their  hands  again,  into  present 
goods  possessing  full  value."  That  is  to  say,  present 
goods  are  always  worth  more  than  future  goods,  and  the 
difference  is  interest.  In  England,  before  the  time  of  the 
Tudors,  it  had  become  generally  recognised  by  merchants 
and  legislators  that  it  was  impossible  to  distinguish  be- 
tween lending  money  itself  and  lending  the  things  which 
had  a  money  value.  Thus,  in  the  natural  course  of  his- 
torical development,  the  term  capital  received  a  wider 
meaning.  Accordingly,  later  on,  we  find  Turgot,  as  Knies 
points  out,  expressly  saying  that  capital  consists  of  accu- 
mulated values  (valeurs  accumuUes),  and  that  it  makes  no 
difference  whether  the  accumulations  consist  of  precious 
metals  or -of  other  things.  Turgot  states,  also,  that  a  man 
can  live  on  capital,  or,  rather,  on  the  interest  of  capital, 
just  as  well  as  from  personal  labour,  or  from  funds  derived 
from  possession  of  lands.  In  this  way,  capital  comes  to  be 
considered  primarily  as  a  source  of  profit.  This  historical 
usage  of  the  term  is  still  found  implied  in  ordinary  thought, 
and  a  Socratic  inquiry  in  the  modern  mercantile  world 
would,  probably,  give  as  a  first-fruit  that  capital  is  wealth 
•  which  yields  a  revenue. 

§  2.  Production  Capital.  It  is  quite  obvious,  however, 
as  the  writers  on  canon  law,  founding  upon  a  doctrine  of 
Aristotle,  were  so  fond  of  pointing  out,  that  the  precious 
metals  are  in  themselves  barren  —  nummus  nummum 
parere  non  potest  —  and  it  is  almost  as  obvious  that  any 
form  of  hoarded  wealth  is  equally  barren ;  that  is  to  say, 
unless  it  is  actively  employed,  so  as  to  produce  more 


PRODUCTION.  89 

wealth.  In  the  earlier  stages  of  agricultural  development, 
for  example,  it  is  quite  common  to  find  that  the  stock  is 
let  with  the  land  (and  the  custom  still  survives  in  the 
metayer  system),  but  unless  the  stock  were  used  for  pro- 
ductive purposes,  it  could  not  possibly  yield  a  revenue.  It 
may  further  be  noticed  that,  although  one  private  person 
may  lend  to  another  capital  which  may  be  used  unproduc- 
tively  (e.g.,  money  lent  on  mortgage),  and  the  interest  of 
which  may  still  be  paid  punctually,  it  would  be  impossible 
for  a  whole  nation  (apart  from  lending  to  foreigners)  to 
subsist  on  this  barren  use  of  capital.  So  much  has  this 
consideration  impressed  itself  upon  economists  that  many 
of  them,  especially  English  writers,  have  given  as  the 
root  idea  of  capital:  that  part  of  wealth  set  aside  for  future  •, 
production.  This,  for  instance,  is  Mill's  view  to  the  exclu-  j 
sion  of  the  older  notion  of  revenue  simply.  Mill,  indeed, ' 
makes  the  idea  of  production  fundamental,  even  in  the 
case  of  individuals,  and  would  only  include  in  a  man's 
capital  that  part  of  his  wealth  intended  to  be  used  in  pro- 
ducing more  wealth. 

A  little  reflection,  however,  will  show  that  either  the 
meaning  of  production  must  be  strained,  or  else  the  defini- 
tion of  capital  thus  obtained  will  be  much  more  narrow 
than  in  the  popular  acceptation.  In  estimating,  for  exam- 
ple, the  accumulations  of  capital  in  the  United  Kingdom 
in  recent  years,  Mr.  Giffen l  takes  into  account  the  mova- 
bles, furniture,  pictures,  etc.,  in  private  houses,  and  roughly 
surmises  that  they  amount  to  about  half  the  value  of  the 
houses  themselves ;  and,  although  in  a  certain  sense  the 
term  "  productive  "  might  be  stretched  to  cover  houses,  it 
could  hardly  be  made  to  cover  pictures  and  ornaments. 
As  the  result  of  this  line  of  criticism,  some  writers  (notably 
Knies)  have  made  the  fundamental  idea  in  capital  to  be 
"wealth  intended  directly,  or  indirectly,  to  satisfy  future 
needs."  If  a  fair  allowance  be  made  for  Adam  Smith's 

1  Essays  on  Finance.  Vol.  I.,  and  (froicth  of  Capital.  See  infra, 
Ch.  XI. 


90  PRINCIPLES  OF  POLITICAL  ECONOMY. 

want  of  scientific  and  technical  phraseology,  his  views  on 
the  fundamental  nature  of  capital  (or  stock,  as  he  prefers 
to  call  it)  come  very  near  to  this  exposition.  For  Adam 
Smith  carefully  distinguishes  between  the  wealth  that  is 
immediately  consumed  and  the  stock  that  is  reserved  or  set 
aside  out  of  a  possible  surplus.  It  is  instructive  to  note 
that  Adam  Smith,  in  order  to  emphasise  the  distinction 
between  income  and  its  source,  or,  in  other  words,  between 
immediate  consumption  and  capital,  gives  a  very  wide  and 
unusual  meaning  to  the  term  immediate.  "  A  stock  of 
clothes  may  last  several  years ;  a  stock  of  furniture  half  a 
century  or  a  century ;  but  a  stock  of  houses,  well  built  and 
properly  taken  care  of,  may  last  many  centuries.  Though 
the  period  of  their  total  consumption,  however,  is  more 
distant,  they  are  still  as  really  a  stock  reserved  for  imme- 
diate consumption  as  either  clothes  or  household  furni- 
ture." 

§  3.  Consumption  Capital.  In  spite  of  the  authority  of 
Adam  Smith,  however,  it  may  be  questioned  if  it  is  advis- 
able to  give  to  the  term  "  immediate  "  such  a  paradoxical 
interpretation,  and  to  exclude  houses  and  the  like  from  the 
capital  of  a  country.  A  man,  it  may  be  argued,  might 
well  choose  between  living  up  to  his  income,  and  saving  so 
much  a  year  in  order  to  build  a  house  for  himself,  and 
when  once  the  house  was  built  it  would  appear  to  form  a 
part  of  the  capital  not  only  of  the  individual  but  of  the 
nation.  In  fact,  on  analysis,  it  seems  that  we  ought  to 
distinguish  between  immediate  (in  the  more  usual  sense 
of  the  term)  and  deferred  consumption.  Even  from  this 
point  of  view,  however,  it  is  impossible  to  take  the  term 
"  immediate "  strictly,  and  it  seems  best  to  construe  it 
relatively  to  the  kind  of  income.  The  immediate  con- 
sumption of  a  labourer  earning  weekly  wages  might  be 
embraced  within  the  week,  whilst  in  the  case  of  a  high- 
salaried  official  a  year  might  be  taken  as  the  unit,  and  in 
the  case  of  a  great  nation  spending  money  on  armaments, 
etc.,  the  term  might  be  extended  for  some  years.  But 


PRODUCTION.  91 

even  in  this  last  example  there  is  still  a  plain  difference 
between  building  forts,  or  strategic  railways,  which  are 
supposed  to  last  for  centuries,  and  providing  for  present 
wants  by  the  personal  equipment  of  soldiers.  Practically 
it  is,  of  course,  always  difficult  to  know  how  much  may 
be  fairly  charged  to  capital  account,  and  how  much  ought 
to  be  reckoned  as  part  of  immediate  consumption.  Logi- 
cally, however,  the  distinction  seems  clear  enough,  and  it 
has  given  rise  to  that  description  of  capital  called  by  the 
Germans,  especially,  consumption  capital.  The  principal 
difficulty  in  this  conception  of  capital  is  that,  in  the  lan- 
guage of  one  of  Mill's  "  four  fundamental  propositions  on 
capital,"  all  capital  is  consumed,  which,  in  the  sense  that 
nothing  lasts  forever,  is  obviously  true.  Yet,  even  the 
school-boy  who  decides  between  a  tin- whistle  and  a  penny 
pie,  knows  that  the  rate  of  consumption  in  the  latter  case 
is  infinitely  quicker  than  in  the  former,  and  it  may  be 
said  that  if  he  eats  the  tart  he  is  only  an  unproductive 
consumer,  whilst  if  he  buys  the  whistle  he  is  a  small 
owner  of  consumption  capital.  And,  in  fact,  Mill's  object 
in  this  proposition  appears  to  have  been  rather  to  empha- 
sise the  distinction  between  hoarding,  in  which  case  the 
wealth  is  not  productively  consumed,  and  saving  in  which 
the  wealth  is  also  used  as  productive  capital. 

§  4.  Root-idea  of  Capital.  So  far,  then,  the  result  of 
the  investigation  of  the  connotation  of  the  term  capital 
appears  to  be  that  there  are  three  species  of  capital,  in 
each  of  which  a  different  quality  is  emphasised  accord- 
ingly as  we  consider  (1)  the  yield  of  a  revenue,  (2)  the 
production  of  more  wealth,  (3)  the  reservation  of  means 
for  future  enjoyment.  It  remains,  then,  to  consider 
whether  there  is  not  some  root-idea  from  which  these 
three  branches  spring.  The  line  of  thought  suggested  by 
Adam  Smith  and  developed  by  Knies  is  found  to  lead  to 
this  result :  Capital  is  wealth  set  aside  for  the  satisfaction 
—  directly  or  indirectly  —  of  future  needs.  This  satisfac- 
tion may  be  obtained  by  the  individual  by  lending  his 


92  PRINCIPLES  OF  POLITICAL   ECONOMY. 

wealth  at  "  usury,"  —  "  usury  of  money,  usury  of  victuals, 
usury  of  anything  that  is  lent  upon  usury,"  —  or  by  re- 
serving means  for  future  production,  as  in  the  case  of  the 
husbandman  with  his  corn  or  cattle,  or  by  laying  up  for 
himself  a  treasure  which  will  be  a  delight  for  many  days. 

In  the  different  departments  of  political  economy  the 
stress  is  laid  in  general  on  one  of  these  three  charac- 
teristics to  the  exclusion  of  the  other  two.  In  the  depart- 
ment of  production,  for  example,  as  the  very  name  implies, 
capital  is  regarded  almost  entirely  as  one  of  the  principal 
agents  in  production,  as  sustaining,  or  auxiliary  to,  labour. 
Logically,  it  is  not  necessary  to  consider  at  this  stage  how 
the  product  is  divided,  or  even  that  it  is  intended  for  future 
or  immediate  consumption.  But,  in  the  departments  of 
distribution  and  exchange,  the  characteristic  of  yielding 
profit  or  revenue  is  fundamental,  whilst  in  taxation  several 
questions  of  importance  spring  from  the  distinction  in- 
volved in  consumption  capital. 

§  5.  Disputed  Questions  regarding  Capital.  The  prin- 
cipal points  of  fundamental  importance  in  the  qualita- 
tive definition  have  now  been  considered,  but  there  are 
several  minor  questions  which  have  given  rise  to  much 
controversy. 

I.  Is  all  capital  the  result  of  labour,  and  ought  we  to 
exclude  the  forces  and  free  gifts  of  nature  ?  The  answer, 
as  in  all  questions  of  definition,  must  depend  purely  on  the 
convenience  of  the  classification  for  the  subject  or  problem 
in  hand.  In  the  department  of  production  it  is  often 
necessary  to  contrast  capital,  in  the  sense  of  accumulations 
due  to  labour  (festgeronnene  Arbeit-Zeit  as  the  German 
socialists  phrase  it),  and  "  the  natural  and  indestructible 
powers  of  the  soil "  of  Ricardo,  as  illustrated,  for  example 
(that  no  exception  may  be  taken  to  the  language),  in  the 
advantages  of  situation.  In  the  department  of  distribu- 
tion, again,  stress  is  often  laid  on  the  limitation  of  natural 
sources  of  supply,  and  the  consequent  unearned  increment, 
whilst  the  ordinary  forms  of  capital,  with  sufficient  labour, 


PRODUCTION.  93 

are  assumed  to  be  capable  of   indefinite  extension  at  an 
ordinary  rate  of  profit. 

On  the  other  hand,  however,  it  is  extremely  difficult 
practically  to  draw  the  line  between  the  gifts  of  nature 
and  the  results  of  labour,  and  between  earned  and 
unearned  increments.  Even  sheep  farms  in  mountain 
districts  require  a  certain  amount  of  surface-drainage, 
fencing,  etc.,  and  when  once  the  necessary  labour  has  been 
bestowed,  it  is  hard  to  tell  how  much  is  due  to  man,  and 
how  much  to  nature.  If  we  consider  the  question  from 
the  national  point  of  view,  and  take,  as  is  natural  with  a 
nation,  long  periods,  the  labour  involved  in  what  is  appar- 
ently the  mere  appropriation  or  first  occupancy  of  the 
natural  sources  will  be  found  to  be  considerable.  Compare, 
for  example,  the  condition  of  England  before  the  invasion 
of  the  Romans,  and  during  the  Roman  occupation,  or 
medieval  England  with  the  England  of  to-day.  Rivers 
have  been  diverted,  extensive  forests  cleared,  swamps  and 
marshes  drained,  and  natural  harbours  improved  and  pro- 
tected. Thus,  even  in  production,  it  would  not  seem 
unreasonable  to  include  these  so-called  natural  sources,  in 
order  to  emphasise  the  fact  that  they  can  only  be  made 
available,  as  with  other  forms  of  capital,  by  the  labour 
and  ingenuity  of  man.  And  although  this  admission  is 
made,  it  would  still  be  possible  to  discuss  Adam  Smith's 
favourite  position  that  in  some  things,  notably  agricul- 
ture, nature  labours  with  man  to  a  greater  extent  than 
in  others,  e.g.,  the  manufacture  of  scientific  instruments  of 
great  delicacy.  It  may  be  observed  that  in  estimates  of 
national  capital,  such  as  that  made  by  Mr.  Giffen,  not 
only  is  land  included,  but  it  stands  first  on  the  list  in 
order  of  importance.  It  is  obvious  also  that  the  capital 
value  of  land  would  certainly  include  from  the  practical 
standpoint,  the  minerals,  etc.,  not  yet  extracted,  as  well 
as  the  value  due  merely  to  such  a  quality  as  situation. 
Logically,  any  difficulty  may  be  technically  overcome  by 
speaking  (with  Held)  of  the  "  labour  of  appropriation," 


94  PRINCIPLES   OF   POLITICAL   ECONOMY. 

especially  if  we  take  into  account  the  contribution  made  by 
the  State  as  such  to  the  organisation  and  security  of  labour. 

II.  A  second  controversy  has  arisen  regarding  the  point 
on  which   Mill   lays   such  stress,  namely:    Does  the  dis- 
tinction bettveen  capital  and  non-capital  depend  on  the  inten- 
tion of  the   capitalist,  or,  in  other  words,  the  owner  of  the 
potential   capital?     If  the  answer  be  in  the  affirmative, 
we  are  confronted  with  the  difficulty  from  the  point  of 
view  of  the  individual,  that  the  same  thing  would  at  one 
time  —  even  on  the  same  day  —  be  considered  capital,  and 
at  another  non-capital.     Thus,  Professor  Marshall,  in  his 
earlier  work,  argued  that  a  doctor's  carriage,  when  used  on 
professional  visits  would  be  capital,  but  when  used  for 
pleasure  merely  would  not  be  capital.1      This  difficulty, 
however,  would  be  overcome   by  admitting  the  species  of 
consumption  capital.     Again,  there  are  certain  forms  of 
wealth,  —  machinery,    tools,    instruments,    etc.,  —  which, 
from  their  nature  can  only  be  considered  as  capital,  whilst 
other  forms  (e.g.,  seed-corn  in  a  famine)  may  or  may  not 
be  immediately  consumed  according  to  the  intention  of 
the  owners.     After  all,  however,  the  difficulty  is  only  one 
of  degree,  and,  as  in  other  cases,  we  may  leave  open  a 
debatable  margin   in  the  case  of    the   individual,  whilst 
with  a  nation  it  would  be  easy  to   determine  roughly  by 
means  of  statistics  between  the  amount  of  goods  or  wares 
immediately  consumed,  and  the  amount  on  the  average 
reserved   directly  or  indirectly  for  the   future.     On  the 
whole  it  may  be  doubted  if  it  is  possible   or  desirable  to 
arrive  at  the  intention  except  by  arguing  from  the  accom- 
plished fact,  or  from  the  nature  of  the  things,  and  the  only 
use  of  the  discussion  is  to  emphasise  again  the  fundamen- 
tal distinction  between  the  satisfaction  of  immediate  and 
future  needs. 

III.  A  third  question  has  been  much  debated,  which  is, 
however,  more  properly  dealt  with  under  wealth,2  namely, 

1  Compare,  however,  the  later  treatment  by  the  same  writer  in  the 
Principles  of  Economics.  2  See  Bk.  I.,  Chs.  I.  and  III. 


PRODUCTION.  95 

Does  capital  include  ivhat  are  called  immaterial  as  distinct 
from  material  utilities  ?  The  answer  is  similar  to  that  given 
to  the  question  as  to  the  connection  between  labour  and 
capital,  and  must  depend  on  the  convenience  of  emphasis- 
ing, or  not,  certain  points  of  analogy  and  contrast.  On 
the  one  side  the  "  fixed  skill "  of  a  workman  is,  in  many 
respects,  similar  to  the  nice  adjustment  of  the  wheels  of  a 
machine,  and  resembles  still  more  closely  the  trained  qual- 
ities of  the  domestic  animals.  The  objection  that  the  skill 
is  attached  to  the  man  may  be  answered,  as  by  Mill,  that 
a  coal  mine  is  also  attached  to  a  place,  or,  still  better,  by 
the  analogy  that  in  matters  of  contract  the  technical  skill 
may  be  considered  as  separated  from  the  other  qualities 
which  go  to  make  up  the  personality  of  the  individual. 
On  the  other  hand,  however,  it  is  often  necessary  to  con- 
trast the  worker  with  the  work  done,  and  the  wealth  pro- 
duced with  the  people  for  whom  it  is  produced.  By  some 
writers  (e.g.,  List)  the  acquired  skill  of  a  people,  the  greater 
part  of  which  has  been  inherited  from  the  past,  and  is  due 
to  the  labour,  and  saving,  and  self-restraint  of  past  gener- 
ations, is  reckoned  as  the  most  important  element  in  the 
national  capital,  and  both  in  the  department  of  production 
and  in  distribution  the  contribution  of  this  "social  capital" 
to  the  annual  produce  must  be  carefully  considered.  The 
principal  reason  why  a  civilised  nation  can  so  soon  recover 
from  the  effects  of  a  devastating  war  is  to  be  found  in  the 
acquired  skill  of  the  inhabitants,  and  the  same  remark 
applies  to  the  rapid  development  of  new  colonies.  Thus 
Adam  Smith  might  well  include  the  skill  of  the  workers 
in  a  nation  in  its  fixed  capital.  If  we  appeal  to  popular 
usage,  however,  the  contrast  appears  to  have  overcome  the 
analogy.  On  the  other  hand,  from  the  scientific  stand- 
point, the  analogy  seems  to  have  overcome  the  contrast, 
and  any  ambiguity,  or  confusion,  may  be  avoided  by  using 
a  qualifying  adjective  such  as  personal  or  immaterial.1 
Besides  the  skill  of  the  inhabitants  of  a  country  there 
1  See  Marshall's  Principles,  Bk.  II.,  Ch.  I\r.,  p.  3. 


96  PRINCIPLES   OF  POLITICAL  ECONOMY. 

are  other  so-called  immaterial  utilities  which  have  some- 
times been  included  in  capital,  and  sometimes  excluded. 
The  precious  metals  which  form  the  material  money  of  a 
country  have  always  been  included  under  its  capital,  and 
the  question  arises  whether,  if  an  efficient  substitute  can 
be  found,  this  substitute  is  not  equally  capital.  There  can 
be  no  doubt  that,  without  the  banking  organisation  of  the 
United  Kingdom,  the  business  even  of  producing  wealth 
could  not  be  carried  on,  at  any  rate  not  to  the  same  extent. 
Banking  is  an  essential  part  of  natural  division  of  labour, 
and  bank  notes  and  other  forms  of  representative  money 
are  quite  as  efficient  agents  of  production  as  the  precious 
metals  themselves.  These  questions,  however,  can  only 
be  fully  discussed  at  a  later  stage.1  From  the  individual 
point  of  view  such  immaterial  utilities  as  the  good-will  of 
a  business,  copyrights,  patents,  and  the  like,  would  fall 
under  capital  unless  the  material  characteristic  is  consid- 
ered essential. 

§  6.  Fixed  and  Circulating  Capital.  —  Besides  the  three 
species  of  capital  already  discussed,  there  are  other  divi- 
sions which  have  found  a  place  in  the  text-books.  The 
most  important  is  the  distinction  between  fixed  and  circu- 
lating capital.  Adam  Smith  took  the  terms,  apparently,  in 
their  literal  sense,  and  considered  the  essence  of  the  differ- 
ence to  lie  in  the  fact  whether  or  not  the  capital  changed 
hands  or  circulated  in  order  to  obtain  a  revenue.  "  If  it 
(i.e.,  stock)  is  employed  in  procuring  future  profit  (as  dis- 
tinct from  present  enjoyment),  it  must  procure  this  profit 
either  by  staying  with  him  or  by  going  from  him.  In  the 
one  case  it  is  a  fixed,  in  the  other  it  is  a  circulating,  capital."  2 
Mill,  on  the  other  hand,  and  most  recent  English  econo- 
mists, define  circulating  capital  as  that  which  performs  the 
whole  of  its  function  in  a  single  use,  whilst  fixed  capital 
can  be  used  more  than  once  in  the  same  way.  Of  course, 
in  particular  cases,  it  would  be  difficult  to  draw  the  line 
accurately;  but  the  broad  distinction  is  quite  obvious, 
i  Bk.  III.  2  Wealth  of  Nations,  Bk.  II.,  Ch.  I. 


PKODUCTION.  97 

Compare  and  contrast,  for  example,  machinery  as  the  type 
of  fixed,  with  food  supplies  and  raw  materials  of  manufac- 
ture as  the  types  of  circulating,  capital. 

Very  often  by  English  writers  circulating  is  used  as 
equivalent  to  wage  capital.  Thus  under  the  title  of  the 
conversion  of  circulating  into  fixed  capital  Mill  really 
discusses  the  effects  of  the  introduction  of  machinery 
upon  the  condition  of  the  working  classes.  The  terms 
sustaining  and  auxiliary,  floating  and  sunk,  specialised  and 
non-specialised,  point  to  the  same  kind  of  distinction,  under 
different  aspects,  as  that  conveyed  by  the  terms  fixed  and 
circulating ;  and  they  have  the  advantage  of  being  more 
free  from  ambiguity  and  question-begging.  At  a  subse- 
quent stage  some  important  practical  consequences  will  be 
seen  to  follow  from  the  specialisation  or. fixation  of  capital, 
especially  in  connection  with  the  effects  of  machinery  on 
wages. 

§  7.  Examination  of  Mill's  Views  on  the  Relations  of 
Labour  and  Capital  in  Production.  It  may  be  thought  by 
those  who  have  been  taught  to  regard  capital,  in  the  narrow 
sense  of  material  production  capital,  that  the  extension  of 
the  term  as  advocated  in  the  preceding  sections  is  un- 
called for,  and  likely  to  lead  to  confusion ;  and,  in  sup- 
port of  this  opinion,  they  may  justly  urge  that  Mill  and 
other  writers  who  adopt  the  more  restricted  meaning  really 
discuss  all  the  problems  arising  from  the  other  forms  of 
so-called  capital  under  different  headings,  such  as  the 
accumulation  of  capital,  the  efficiency  of  industrial  agents, 
the  organisation  of  industry,  and  the  influence  of  credit. 
Unquestionably  many  of  the  complicated  controversies 
which  have  arisen  in  connection  with  the  definition  of 
capital,  are,  to  a  large  extent,  verbal,  and  do  not  involve 
corresponding  differences  on  matters  of  fact,  and  to  narrow 
a  definition  is  not  the  same  thing  as  to  narrow  a  subject. 
It  would,  however,  be  a  great  mistake  to  suppose  that 
those  who  have  confined  the  term  capital  to  'material 
wealth '  intended  to  be  'devoted  to  the  production  of  more 


98  PRINCIPLES  OF  POLITICAL   ECONOMY. 

material  '  wealth '  have  thereby  escaped  all  confusion.  It 
may,  indeed,  be  doubted,  if,  in  the  whole  range  of  economic 
literature,  there  is  anything  to  equal  the  confusion,  both  in 
thought  and  expression,  of  Mill's  four  fundamental  propo- 
sitions on  capital.  The  strange  combination  of  axiom  and 
paradox,  of  error  exposed  and  truth  suppressed,  of  practi- 
cal wisdom  and  unreal  hypothesis,  has  exercised  the 
ingenuity  of  all  subsequent  writers.  The  principal  cause 
of  confusion  is  due  to  the  fact,  that,  whilst  apparently 
discussing  problems  in  production,  Mill  really  introduces 
questions  of  distribution,  and,  in  doing  so,  takes  for 
granted  that  celebrated  wages-fund  theory  which  itself  is 
now  generally  admitted  to  be  partly  incomplete  and  partly 
erroneous.  I  shall  not  attempt  to  follow  Mill  in  his 
anticipation  of  the  theory  of  wages,  but  I  shall  endeavour 
to  extract  from  his  propositions  those  portions  which  bear 
upon  production,  and  may  still  be  applied  to  prevailing 
popular  fallacies.  The  reaction  against  the  wages-fund 
theory,  and  all  its  consequences,  has  tended  to  bring  into 
undeserved  disrepute  some  of  the  most  valuable  teaching 
of  older  writers.  In  examining  these  propositions  capital 
will,  of  course,  be  taken  in  Mill's  sense  —  i.e.,  material  pro- 
duction capital. 

I.  Industry  is  limited  by  capital.  It  has  already  been 
explained  that  capital  is  an  essential  agent  of  production 
even  in  the  earliest  stages  of  industrial  society,  and  in  the 
later  it  is  still  more  obviously  a  necessary  element.  It 
follows  that  one  limit  to  the  augmentation  of  industry  is 
given  by  the  amount  of  capital  which  a  nation  can  com- 
mand. The  reality  of  this  limit  is  at  once  seen  by  glancing 
at  the  past  and  present  conditions  of  various  nations.  Old 
countries,  by  bad  government,  excessive  taxation,  extrava- 
gant luxury,  and  similar  causes,  have,  at  the  same  time, 
lessened  their  capital  and  their  industry ;  and  new  coun- 
tries have  endeavoured  to  advance  beyond  the  limit  im- 
posed by  the  capital  they  can  acquire  or  maintain,  and 
their  industry  has  suffered  accordingly. 


PRODUCTION.  99 

It  is  equally  true  that  any  particular  industry  is  limited 
by  the  capital  devoted  to  it :  without  capital  land  cannot 
be  cultivated,  mines  cannot  be  worked,  factories  cannot 
be  built. 

Yet,  in  spite  of  these  obvious  truths,  it  long  continued 
to  be  believed  that  laws  and  governments  without  creating 
capital  could  create  industry.  Particular  examples  of  this 
fallacy  are  seen  in  the  demand  that  government  should 
always  provide  work  for  the  unemployed,  and  in  the 
grosser  forms  of  the  argument  for  protection  to  native 
industry.  The  English  Poor  Law,  before  the  Amendment 
Act,  and  the  English  protective  system,  before  the  era  of 
free  trade,  both  rested  on  the  fallacy  against  which  this 
proposition  is  directed.  At  the  present  time  there  is  an 
ever-increasing  demand  for  governmental  assistance:  to 
establish  peasant  proprietors,  to  develop  fisheries,  to  ex- 
tend railways,  and  to  promote  all  sorts  of  industrial 
undertakings.  In  dealing  with  practical  problems  of  this 
kind  there  are,  no  doubt,  many  other  considerations  to  be 
weighed  and  balanced,  but  even  the  richest  country  must 
remember  that  industry  is  limited  by  capital. 

It  is  true  that  the  proposition  requires,  as  it  receives 
from  Mill,  important  qualifications.  A  government  may 
indirectly,  at  any  rate,  increase  the  efficiency  of  labour, 
and  thus  enable  the  same  capital  to  do  more  work,  as,  for  ex- 
ample, by  education,  and  sanitary  and  social  legislation  of 
various  kinds.  Again,  capital  is  only  one  of  the  limits  to 
industry,  and  it  often  happens  that  industiy  falls  short 
of  this  particular  limit.  Sometimes  there  is  a  deficiency 
of  labour,  and  a  government  by  attracting  immigrants 
may  give  greater  employment  to  capital.  Sometimes  a 
government  may  break  down  superstitions,  prejudices,  and 
customs  which  prevent  the  progress  of  industry,  as  has 
occurred,  for  example,  in  India,  and  still  more  recently 
in  Japan. 

To  a  certain  extent,  indeed,  government  can  actually 
create  capital  by  laying  taxes  upon  expenditure,  and 


100  PKINCIPLES  OF  POLITICAL  ECONOMY. 

devoting  the  proceeds  to  production.  There  is,  of  course, 
the  danger  of  checking  accumulation,  and  of  imposing 
restraints  upon  trade,  and  there  are  other  difficulties  con- 
nected with  governmental  management ;  but  such  a  trans- 
ference, or  conversion,  of  non-capital  into  capital  is  always 
theoretically  possible  and  often  practicable.1 

But  when  all  is  said  it  still  remains  true  that  one  of  the 
real  limits  to  industry  is  capital,  and  every  nation  which 
attempts  to  over-step  the  limit  will  receive  a  rude  shock. 
The  theory  finds  abundant  illustration  from  commercial 
crises,  and  from  the  transference  of  industrial  supremacy. 

II.  Capital  is  the  result  of  saving.     As  Mill   himself 
points  out,  the  use  of  the  term  saving  is  open  to  objection, 
for  it  naturally  suggests  privation  and  abstinence,  whilst 
all  that  is  meant  is,  that  if  capital  is  to  increase  there  must 
be  an  excess  of  production  over  consumption.     This  is  the 
'really  favorable  balance'  which  as  Adam  Smith  observed, 
'necessarily  occasions  the  prosperity,  or  decay,  of  every 
nation.' 2 

III.  Capital  is  consumed.     This  proposition  is  comple- 
mentary  to   the   last.     It   explains   further   what  is   the 
nature  of  the  saving  process,  and  the  distinction  between 
saving  and  hoarding.     The  fallacy  against  which  both  are 
aimed  is  expressed  in  various  modes :  that  the  unproduc- 
tive expenditure  of  the  rich  is  necessary  to  the  employ- 
ment of  the  poor  ;  that  saving  only  benefits  oneself  whilst 
spending  benefits  others ;  that  saving  capital  is  the  same 
as  hoarding  money,  whilst  the  diffusion  of  money  increases 
industry.     If,  however,  it  is  admitted  that  capital  is  con- 
sumed, and  money  is  regarded  simply  as  an  intermediary, 
it  is  obvious  that  the  saving  of  capital  is  tantamount  to 
transferring  the  immediate  consumption  of  goods  to  others, 
with  a  concomitant   increase  in  the  annual   consumable 

1  Compare  Mill's  treatment  of  the  tendency  of  profits  to  a  minimum  and 
its  consequences  for  a  fuller  statement  of  this  position.    Bk.  IV.,  Chs. 
V.,  VI.,  VII. 

2  Bk.  IV.,  Ch.  III.     See  infra,  Ch.  XI. 


PRODUCTION.  101 

produce.  '  Saving,  in  short,  enriches,  and  spending  impov- 
erishes, the  community,  along  with  the  individual.' 

Mill  calls  attention  in  connection  with  this  proposition 
to  the  erroneous  idea  that  most  people  entertain  regarding 
the  transmission  and  inheritance  of  capital.  They  imagine 
that  the  greater  part  of  a  nation's  capital  was  accumulated 
in  the  past,  and  that  any  given  year  only  produces  what 
is  added  to  the  previous  amount. 

The  fact  he  asserts  is  far  otherwise.  The  greater  part 
in  value  of  the  wealth  now  existing  in  England  has  been 
produced  by  human  hands  within  the  last  twelve  months ; 
a  very  small  proportion  was  in  existence  ten  years  ago ; 
and  scarcely  anything  in  the  nature  of  productive  capital 
has  come  down  to  us  from  a  remote  period.  The  land 
subsists,  and  the  land  is  almost  the  only  thing  that  sub- 
sists. Everything  which  is  produced  perishes,  and  most 
things  very  quickly.  Capital  is  kept  in  existence,  from 
age  to  age,  not  by  preservation,  but  by  perpetual  repro- 
duction. The  growth  of  capital  is  similar  to  the  growth 
of  population,  the  population  increases,  though  not  one 
person  of  those  composing  it  was  alive  until  a  very  recent 
date.  It  will  be  seen  from  these  sentences  which  with 
some  abbreviation  are  taken  directly  from  Mill 1  that  he 
by  no  means  exaggerates  the  influence  and  importance  of 
capital  as  compared  with  labour  in  production.  On  the 
contrary,  at  the  outset,  he  is  careful  to  state  that  the 
expression  applying  capital  is  metaphorical,  that  what  is 
really  applied  is  labour,  capital .  being  an  indispensable 
condition.2 

IV.  Demand  for  commodities  is  not  demand  for  labour. 
Unlike  the  first  three,  this  proposition  instead  of  appearing 
to  be  obviously  true,  seems  rather  obviously  false.  To 
most  people  the  position  of  Sir  James  Steuart  will  com- 

1  Bk.  I.,  Ch.  V.,  §  6. 

2  The  perishable  nature  of  capital,  and  the  need  for  continuous  repro- 
duction, has  been  well  brought  out,  with  recent  and  interesting  statistics, 
by  Mr.  Atkinson.  The  Distribution  of  Products. 


102  PRINCIPLES  OF  POLITICAL  ECONOMY. 

• 

mend  itself  as  much  more  reasonable.  "  Reciprocal  wants 
excite  to  labour,  and  the  augmentation  of  wants  will 
require  an  augmentation  of  free  hands."  An  appeal  to 
facts  shows  still  mope  clearly  that  Mill's  proposition  is,  at 
any  rate,  extremely  paradoxical.  Every  revival  of  trade 
may  be  said  to  begin  with  an  increase  in  the  demand  for 
some  commodities  ;  this  causes  an  increase  in  the  demand 
for  labour,  and  this  again  leads  to  a  further  increase  in 
demand  for  other  things,  and  ultimately  for  other  kinds 
of  labour.  Thus  demand  appears  to  be  the  main-spring  of 
industry.  I  shall  not  attempt  to  decide  the  question,  on 
which  already  so  much  has  been  written  that  agreement 
seems  impossible,  —  the  question,  namely,  what  Mill  him- 
self did  and  did  not  mean  in  this  singular  statement.1  I 
shall  content  myself  with  indicating  those  portions  of  his 
argument  which  enforce  the  preceding  propositions.  First 
then,  he  assumes,  as  in  the  first  proposition,  that  the  capi- 
tal of  a  country  —  available  and  adapted  for  production  — 
at  any  time  is  limited,  and  that  industry  is  limited  by 
capital.  Next  he  assumes  that  consumers  or  demanders 
of  commodities  do  not  advance  the  capital  beforehand,  or, 
in  other  words,  that  they  do  not  convert  their  non-capital 
into  capital.  It  follows  that  demand  can  only  determine 
the  direction  and  not  the  amount  of  the  application  of 
capital,  and  that  an  increase  in  demand  at  one  point  (as  in 
a  change  of  fashion)  implies  a  corresponding  diminution 
at  another.  Mill  allows  that  if  the  demand  happens  to  be 
of  such  a  kind  as  to  increase  capital,  it  would  also  increase 

1  His  introductory  sentences  make  the  very  meaning  of  demand  doubt- 
ful. "  Suppose  that  there  is  a  demand  for  velvet,  afimd  ready  to  be  laid 
out  in  buying  velvet  but  no  capital  to  establish  the  manufacture.  It  is  of 
no  consequence  how  great  the  demand  may  be,  etc."  I  do  not  see  how 
this  passage  can  be  made  self-consistent,  and  still  less  how  it  can  be  recon- 
ciled  with  the  following  general  description  of  capital  (Bk.  I.,  Ch.  IV., 
p.  1).  "  What,  then,  is  his  capital?  Precisely  that  part  of  his  possessions, 
whatever  it  is,  which  is  to  constitute  the  fund  for  carrying  on  fresh  pro- 


in a  form  in  which  it  cannot  directly  supply  the  wants  of  labourers." 


duction.    It  is  of  no  consequence  that  a  part,  or  even  the  whole  of  it,  is 


PRODUCTION.  103 

the  demand  for  labour ;  as,  for  example,  if  a  farmer  were 
to  feed  and  house  another  labourer  instead  of  a  race- 
horse. But  he  appears  to  forget  that  industry  may  not 
come  up  to  the  limit  imposed  by  capital,  that  capital  may 
be  lying  idle,  and  that  in  modern  societies  this  capital  is 
not  in  the  hands  of  consumers,  but  is  lent  by  them  directly, 
or  indirectly,  to  bankers  and  bill-brokers,  and  is  thus  ready 
to  be  advanced  according  to  the  demands  of  trade.1 

A  general  review  of  these  propositions  seems  to  show 
that  (apart  from  questions  of  wages  and  distribution  which 
cannot  advantageously  be  discussed  so  early)  they  are 
intended  to  enforce  two  general  positions :  1°,  that  capital 
is  one  essential  condition  of  production ;  without  instru- 
ments and  means  of  support  whilst  the  work  is  in  progress 
production  cannot  go  on :  2°,  that  capital  involves  for  its 
increase  the  postponement  of  present  consumption.  These 
positions  have  been  proved  to  be  useful  in  the  exposure  of 
certain  crude  fallacies,  as,  for  example,  in  Bastiat's  admir- 
able "petition  of  the  candle-makers  and  others  against  the 
use  of  windows,"  with  the  view  of  "  making  work  "  in  the 
production  of  artificial  light.2 

In  conclusion  it  must  be  observed  that  it  is  impossible 
to  thoroughly  discuss  such  a  comprehensive  term  as  capital 
without  travelling  over  every  department  of  economics.3 

1  See  Bagehot's  Postulates,  especially  II. :  On  the  Transferability  of 
Capital. 

2  For  recent  criticisms  on  Mill's  propositions  on  capital  the  reader  may 
consult  Sidgwick's  Principles,  Bk.  I.,  Ch.  V.  (note)  ;  Marshall's  Princi- 
ples, Bk.  VI.,  Ch.  II.  (note).    An  excellent  criticism,  especially  showing 
the  effect  of  demand  as  a  stimulus,  is  that  of  Cournot,  Revue  Sommaire, 
pp.  216-221.     Compare  also  Adam  Smith,  Bk.  IV.,  Ch.  II.,  the  passage 
commencing :  "  The  general  industry  of  the  society  never  can  exceed  what 
the  capital  of  the  society  can  employ.  .  .  .    No  regulation  of  commerce 
can  increase  the  quantity  of  industry  in  any  society  beyond  what  its  capi- 
tal can  maintain.     It  can  only  divert  a  part  of  it  into  a  direction  into 
which  it  might  not  otherwise  have  gone,  and  it  is  by  no  means  certain 
that  this  artificial  direction  is  likely  to  be  more  advantageous  to  the  society 
than  that  into  which  it  would  have  gone  of  its  own  accord." 

3  In  illustration  of  this  remark  compare  the  voluminous  works  of  Karl 
Marx  and  E.  von  Bohm-Bawerk  on  Capital. 


CHAPTER  VII. 

DIVISION   OF   LABOUR. 

§  1.  Meaning  of  Division  of  Labour.  The  expression 
division  of  labour  refers  to  several  distinct  but  closely 
^-allied  conceptions.  Dugald  Stewart  proposed  as  a  substi- 
tute economy  of  labour,  Lord  Lauderdale  the  operation  of 
capital  in  superseding  labour,  whilst  Mill  adopted  the  opin- 
ion, supposed  to  be  due  to  Wakefield,  that  division  of 
labour  is  only  a  single  and  over-rated  department  of  the 
mere  fundamental  principle  of  co-operation  or  combination 
of  labour.  The  authority  of  Adam  Smith,  however,  has 
given  division  of  labour  a  permanent  place  in  economic 
nomenclature,  and  on  the  whole  it  seems  to  suggest  the 
principal  ideas  intended  better  than  the  substitutes  that 
have  been  proposed.  It  should  be  observed  that  although 
Adam  Smith  begins  with  an  example  from  a  "  very  trifling 
manufacture,  but  one  in  which  the  division  of  labour  has 
been  very  often  taken  notice  of  —  namely,  the  trade  of  the 
pin-maker,"  he  proceeds  to  give  a  breadth  to  the  principle 
which  ought  to  have  satisfied  the  most  exacting  editor.1 
It  is  applied,  for  example,  to  philosophy  and  speculation, 
and  we  are  told  that  the  quantity  of  science  is  consider- 
ably increased  by  it.2  Here,  perhaps,  the  application  may 
appear  to  range  beyond  the  proper  limits  of  economic 
inquiry.  But  no  such  objection  can  be  raised  to  the 

1  The  criticism  alluded  to  by  Mill  is  found  in  a  note  in  Wakefield's 
edition  of  Adam  Smith,  Vol.  I.,  p.  26. 

2  In  recent  times  speculation  in  various  forms  of  science  has  extended 
more  rapidly  than  the  necessary  exchange  of  ideas,  with  great  intellectual 
waste  in  consequence. 

104 


PRODUCTION.  105 

eloquent  passage *  in  which  the  effects  of  the  principle 
upon  the  general  condition  of  the  labouring  classes  are 
described.  "  Observe  the  accommodation  of  the  most  com- 
mon artificer  or  day-labourer  in  a  civilised  and  thriving 
country,  and  you  will  observe  that  the  number  of  people 
of  whose  industry  a  part,  though  but  a  small  part,  has  been 
employed  in  procuring  him  this  accommodation  exceeds 
all  computation.  The  woollen  coat,  for  example,  which 
covers  the  day-labourer,  as  coarse  and  rough  as  it  may 
appear,  is  the  produce  of  the  joint  labour  of  a  great  multi- 
tude of  workmen.  The  shepherd,  the  sorter  of  the  wool, 
the  wool-comber  or  carder,  the  dyer,  the  scribbler,  the 
spinner,  the  weaver,  the  fuller,  the  dresser,  with  many 
others,  must  all  join  their  different  arts  in  order  to  com- 
plete even  this  homely  production.  How  many  merchants 
and  carriers  besides  must  have  been  employed  in  trans- 
porting the  materials  from  some  of  those  workmen  to 
others  who  often  live  in  a  very  distant  part  of  the  country. 
How  much  commerce  and  navigation,  in  particular  how 
many  ship-builders,  sailors,  sail-makers,  rope-makers,  must 
have  been  employed  in  order  to  bring  together  the  different 
drugs  made  use  of  by  the  dyer,  which  often  come  from 
the  remotest  corners  of  the  world.  .  .  .  Were  we  to 
examine  in  the  same  manner  all  the  different  parts  of  his 
dress  and  household  furniture,  the  coarse  linen  shirt  which 
he  wears  next  his  skin,  the  shoes  which  cover  his  feet,  the 
bed  which  he  lies  on,  and  all  the  different  parts  which 
compose  it,  the  kitchen  grate  at  which  he  prepares  his 
victuals,  the  coals  which  he  makes  use  of  for  that  purpose, 
dug  from  the  bowels  of  the  earth  and  brought  to  him  per- 
haps by  a  long  sea  and  a  long  land  carriage,  all  the  other 
utensils  of  his  kitchen,  all  the  furniture  of  his  table,  the 

1  Marx  points  out  that  this  passage  is  a  close  imitation  of  Mandeville's 
Remarks  in  his  Fable  of  the  Bees  (edit.  1714),  Capital  (edit.  Sonnen- 
schein),  p.  348,  note.  The  treatment  by  Marx  iu  Capital,  Part  IV.  of 
Division  of  Labour  and  allied  topics,  is  both  learned  and  exhaustive,  and 
is  well  worth  reading.  There  is  also  much  less  of  the  rhetorical  parti- 
sanship that  is  so  prominent  in  other  parts  of  his  work. 


106  PRINCIPLES  OF  POLITICAL  ECONOMY. 

knives  and  forks,  the  earthen  or  pewter  plates  upon  which 
he  serves  up  and  divides  his  victuals,  the  different  hands 
employed  in  preparing  his  bread  and  beer,  the  glass  window 
which  lets  in  the  heat  and  the  light  and  keeps  out  the 
wind  and  the  rain,  with  all  the  knowledge  and  art  requisite 
for  preparing  that  beautiful  and  happy  invention  without 
which  these  northern  parts  of  the  world  could  never  have 
afforded  a  very  comfortable  habitation,  together  with  the 
tools  of  all  the  different  workmen  employed  in  producing 
these  different  conveniences ;  if  we  examine,  I  say.  all 
these  things  and  consider  what  a  variety  of  labour  is 
employed  about  each  of  them,  we  shall  be  sensible  that 
without  the  assistance  and  co-operation  of  many  thousands, 
the  very  meanest  person  in  a  civilised  country  could  not 
be  provided  even  according  to  what  we  very  falsely  imagine 
the  easy  and  simple  manner  in  what  he  is  commonly  accom- 
modated." 

I  have  transcribed  the  passage  at  length  partly  to  show 
that  Adam  Smith  used  division  of  labour  with  a  very  wide 
meaning,  and  partly  because  constant  familiarity  with  the 
principle  and  its  application  make  us  apt  to  forget  its 
fundamental  importance. 

It  is  obvious  that  division  of  labour  must  be  associated 
with  a  corresponding  division  or  application  of  capital, 
and  in  modern  societies,  as  regards  material  wealth,  we 
have  to  consider  especially  the  effects  of  complicated 
machinery. 

/  On  analysis  division  of  labour,  taken  in  the  broad  sense 
just  indicated,  will  be  found  to  include,  first,  (a)  separa- 
tion of  employments,  and  (6)  separation  of  processes  within 
an  employment;1  and  secondly,  (a)  combination  as  an 
essential  condition  of  the  separation,  and  thus  (6)  organi- 
sation and  exchange.  It  will  be  convenient,  as  far  as 
possible,  to  treat  these  conceptions  separately. 

§  2.    Separation   of  Employments.     The   separation   of 
employments  is  one  of  the  most  characteristic  marks  of 
1  Some  writers  confine  the  term  to  this  very  narrow  meaning. 


PRODUCTION.  107 

economic  progress.  "All  things,"  wrote  Plato,1  "will  be 
produced  in  superior  quantity  and  quality  and  with  greater 
ease,  when  each  man  works  at  a  single  occupation  in 
accordance  with  his  natural  gifts,  and  at  the  right  moment, 
without  meddling  with  anything  else."  He  accordingly 
maintains  that  the  numbers  of  a  state  ought  to  be  such  as 
to  admit  of  an  adequate  separation  of  employments.  Even 
at  the  present  time,  in  Scotland,  there  are  villages  which 
cannot  support  a  baker  or  butcher,2  and  owing  to  the  dis- 
tance from  towns  cannot  import  their  bread  and  meat;  still 
less  can  they  provide  themselves  with  other  commodities 
which  in  towns  are  thought  necessary,  such  as  coal,  gas,  and 
water  in  the  houses.  We  find  the  general  principle,  how- 
ever, most  strongly  marked  by  taking  stages  in  the  devel- 
opment of  a  progressive  society.3  Compare,  for  example, 
the  Domesday  Survey  of  England  with  the  last  Census. 
In  the  earlier  period  the  whole  county  was  studded  with 
manors  which  were  practically  villages  in  serfdom  under 
an  over-lord ;  these  villages  were  in  the  main  self-support- 
ing, and  the  inhabitants  were  for  the  most  part  engaged 
in  agriculture  or  in  the  simple  industries  immediately 
subsidiary  to  it.  Acorns,  for  the  food  of  pigs,  were  prob- 
ably of  more  importance  in  the  national  wealth  than  all 
the  minerals  in  the  country.  The  change  to  the  present 
condition  of  industry  is  due  to  the  accumulated  effects  of 
causes  operating  through  centuries,4  and  the  rapid  progress 
of  the  last  hundred  years  ought  not  to  make  us  forget  the 
advances  made  in  former  times.  The  mediaeval  period,5 

1  Republic,  Bk.  I. 

2  It  is  not  so  long  since  every  man  was  his  own  candlestick-maker,  the 
candlestick  being  a  piece  of  twisted  iron,  and  the  candle  a  piece  of  resin- 
ous wood. 

8  See  an  example  from  Saxon  times  in  Cunningham's  Growth  of  In- 
dustry and  Commerce,  Vol.  I.,  p.  126. 

*  Cf.  Adam  Smith,  Bk.  IV.,  Ch.  IV.  '  How  the  commerce  of  the  Towns 
contributed  to  the  Improvement  of  the  Country.' 

6  For  economic  purposes  the  mediaeval  period  may  be  said  to  end  with 
the  fifteenth  century. 


108  PRINCIPLES  OF  POLITICAL  ECONOMY. 

which  is  still  often  spoken  of  as  an  age  of  darkness  and 
stagnation,  was,  in  truth,  an  age  of  enthusiasm  and  up- 
heaval ;  in  no  department  is  this  more  plainly  marked  than 
in  the  economic  structure  of  society ;  and  of  economic 
progress  the  most  simple  and  obvious  test  is  the  increase 
in  the  separation  of  employments. 

§  3.  Specialisation  of  Skill.  The  separation  of  employ- 
ments, and  of  processes  within  an  employment,  involves, 
in  the  first  place,  a  specialisation  of  skill  and  of  auxiliary 
capital.  An  examination  of  this  characteristic  affords  an 
opportunity  for  a  statement  of  the  advantages  of  division 
of  labour  in  the  narrow  sense  of  the  term. 

I.  The  increased  dexterity  of  the  workmen,  especially 
when  associated  with  machinery,  is  of  importance,  not  only 
as  regards  quantity,  but  quality.1     Babbage,  in  his  classical 
work  on  the  Economy  of  Machines  and  Manufactures,  gives 
many  examples  of  things  too  delicate  to  be  done  by  the 
unaided   hand.     Professor   Marshall  has    recently   called 
attention  to  the  importance  of  the  interchangeability  of 
parts  in  machines,  by  which  repairs  can  be  effected  at  once 
without  sending  the  whole  machine  to  the  maker.2     The 
increase  of  dexterity,  as  Dugald  Stewart  observed,  is  not 
so  great  as  might  be  expected  in  effecting  an  increase  in 
the  quantity  produced,  except  so  far  as  labour  is  assisted 
by  auxiliary  capital.     After  a  certain  point  is  reached  there 
is  a  diminishing  return  to  the  dexterity  of  the  individual, 
and  it  is  more  advantageous  to  employ  an  additional  hand. 

In  the  higher  forms  of  practical  science,  as  for  example 
chemistry,  electricity,  and  engineering,  division  of  labour 
appears  to  be  a  necessary  condition  of  the  requisite  skill. 

II.  The  classification  of  labour  according  to  its  capacity, 
and  the  employment  of  the  auxiliary  capital  to  the  full 
extent  of  its  working  power,  are  advantages  which  may  be 
observed  alike  in  a  single  factory,  and  in  the  whole  indus- 

1  Dugald  Stewart  points  out  that  Xenophon  considered  improvement 
in  quality  the  chief  advantage  of  division  of  labour. 

2  Cf.  Effects  of  Machinery,  p.  89. 


PRODUCTION.  109 

trial  system  of  a  country.  Thus  the  development  during 
the  present  century  of  self-acting  machinery  in  the  cotton, 
flax,  woollen,  lace,  and  silk  manufactures  has  diminished 
the  proportion  of  males  above  eighteen  compared  with 
women  and  children.  The  adult  males  thus  set  at  liberty 
have  been  absorbed  largely  in  mining,  foundries,  and  the 
transport  services.1  On  the  whole,  as  already  observed,  a 
greater  degree  of  skill,  both  general  and  special,  is  required 
under  this  appropriate  classification. 

III.  The  saving  of  time  in  keeping  to  one  kind  of  work, 
though  liable  to  be  exaggerated  as  regards  the  individual, 
has  several  points  of  advantage.     There  is  less  time  re- 
quired for  learning  one  trade  or  occupation  or  process,  and 
there  is  no  waste  in  going  from  one  employment  or  place 
to  another.     One  of  the  principal  advantages  of  the  Post- 
office  is  in  the  saving  of  time  in  delivering  and  collecting 
letters. 

In  one  sense  the  saving  of  time  involved  in  division  of 
labour  is  of  fundamental  importance,  as  without  it  some 
things  could  never  be  accomplished  within  the  time  in 
which  they  are  required.  This  is  well  put  by  Bastiat, 
who  says  that  a  workman  now  consumes  in  one  day  more 
articles  than  in  an  isolated  condition  he  could  make  in  one 
thousand  years. 

IV.  The  invention   of  new  machines  and  processes  is 
stimulated  by  the  division  of  labour.     It  is  true  that  many 
improvements  of  a  fundamental  character  have  been  due 
to  "philosophers  or  men  of  speculation  whose  trade  it  is 
not  to  do  anything,  but  to  observe  everything,  and  who 
upon  that  account  are  often  capable  of  combining  together 
the  powers  of  the  most  distant  and  dissimilar  objects." 
But  when  once  a  radical  change  has  been  introduced  for 
its  full  development,  it  requires  a  continuous  succession  of 
small  increments  of  invention,  and  these  are  most  likely 
to  be  made  by  those  constantly  engaged  in  particular  proc- 
esses.   No  complaint  indeed  is  more  common  than  that  the 

1  See  Effects  of  Machinery  on  Wages,  p.  80. 


110  PRINCIPLES  OF  POLITICAL  ECONOMY. 

real  inventor  or  the  first  discoverer  of  the  creative  idea, 
rarely  obtains  any  adequate  reward,  because  his  patent  is 
at  once  improved  upon  and  displaced  by  others.  It  seldom 
happens  in  material  production  that  any  real  improvement 
is  lost,1  and  in  consequence  the  cumulative  effects  of  these 
little  increments  become  in  the  course  of  time  of  vast  mag- 
nitude and  complexity.  "  One  might  almost  conjecture," 
says  Mr.  Seebohm,  after  a  graphic  description  of  the  an- 
cient tribal  house,  "that  as  the  tabernacle  was  the  type 
which  grew  into  Solomon's  temple,  so  the  tribal  house 
built  of  green  timber  and  wattle,  with  its  high  nave  and 
lower  aisles,  when  imitated  in  stone  grew  into  the  Gothic 
cathedral.  Certainly  the  Gothic  cathedral  simplified  and 
reduced  in  size  and  materials  to  a  rough  and  rapidly  erected 
structure  of  green  timber  and  wattle  would  give  no  bad 
idea  of  the  tribal  house  of  Wales  and  Ireland."  2  Another 
excellent  example  is  furnished  by  the  improvements  grad- 
ually introduced  in  the  mediaeval  period  into  the  houses  of 
London.3  The  growth  of  London  is  a  striking  instance  of 
the  cumulative  effects  of  small  increments  in  the  course 
of  centuries.  In  the  reign  of  Stephen  the  vast  majority 
of  houses  were  built  of  wood  and  thatched  with  straw. 
Fitz-Alwyne's  assize  in  1189  may  be  considered  as  the  first 
building  Act.  It  provided  that  partition  walls  should  be 
of  stone.  The  houses  had  still  only  two  storeys,  and  pent- 
houses were  to  project  high  enough  for  people  to  ride 
underneath.  There  were  very  few,  if  any,  chimneys.  Fire 
was  much  dreaded,  and  tubs  of  water  were  stationed  at  the 
house  doors,  and  the  bedells  were  furnished  with  hooks  to 
rake  down  the  burning  houses.  The  "  dawber  "  who  filled 
up  the  timber  framework  with  mud  and  straw  occupied  an 
important  place  in  the  division  of  labour  of  the  time.  As 
late  as  the  year  1300,  persons  living  in  the  city  were  al- 

1  There  are,  however,  important  cases  on  record  to  the  contrary.     See 
Mitchell's  Past  in  the  Present. 

2  English  Village  Community,  p.  241. 
8  See  Liber  Albus,  Introduction. 


PRODUCTION.  Ill 

lowed  to  keep  pigs  within  their  houses,  and  four  men  were 
appointed  to  kill  the  loose  ones.  Soon  afterwards  this 
privilege  of  keeping  pigs  in  London  houses  was  confined 
to  bakers. 

The  progress  of  ship-building  and  of  the  art  of  naviga- 
tion illustrates  almost  as  well  as  the  growth  of  a  great  city 
the  cumulative  effects  of  increments  of  invention.  Take, 
for  example,  the  following  description,1  written  about  1200, 
of  the  origin  of  the  mariner's  compass :  "  This  (polar)  star 
does  not  move.  The  seamen  have  an  art  which  cannot 
deceive  by  virtue  of  the  manete,  an  ill-looking  brownish 
stone,  to  which  iron  spontaneously  adheres.  They  search 
for  the  right  point,  and  when  they  have  touched  a  needle 
with  it  and  fixed  it  on  a  bit  of  straw,  they  lay  it  on  the 
water  and  the  straw  keeps  it  afloat.  Then  the  point  infal- 
libly turns  to  the  star,  and  when  the  night  is  dark  and 
gloomy  and  neither  star  nor  moon  is  visible,  they  set  a 
light  beside  the  needle  and  they  can  be  assured  that  the 
star  is  opposite  to  the  point ;  and  thereby  the  mariner  is 
directed  in  his  course.  This  is  an  art  which  cannot  de- 
ceive." Equally  instructive  is  the  gradual  development  of 
the  boat  into  the  three-decker  and  ironclad.  The  Saxon 
ships  at  the  end  of  the  eighth  century  were  scarcely  more 
than  a  large  boat :  they  had  one  mast  with  one  large  sail, 
and  could  probably  only  sail  before  the  wind;  and  they 
were  steered  by  a  large  oar  with  a  flat  end  very  broad 
passing  by  the  side  of  the  stern.2  In  our  own  times  first 
iron  and  then  steel  have  displaced  wood  for  ship-building 
generally. 

V.  The  most  important  advantage  of  division  of  labour 
in  material  production  is  connected  with  the  fact  that  it  is 
an  essential  condition  of  the  employment  of  machinery,  or, 
more  generally,  of  auxiliary  capital,  as,  for  example,  in  the 

1  Quoted  in  Macpherson's  Annals  of  Commerce  (from  the  works  of 
Hugues  de  Bercy,  called  also  Guiot  de  Previns),  Vol.  I.,  p.  362. 

2  Macpherson,  Vol.  I.,  p.  262.     Another  good  example  is  the  develop- 
ment of  the  mill. 


112  PRINCIPLES  OF  POLITICAL  ECONOMY. 

application  of  chemistry  and  electricity.  The  mere  in- 
crease in  manual  dexterity  or  in  quickness  of  vision  or  in 
sensibility  of  touch  is  of  minor  importance  compared  with 
the  growth  of  man's  power  over  nature,  and  this  growth 
has  always  been  conjoined  with  division  of  labour. 

§  4.  Separation  of  Employments  involves  Combination. 
It  is  obvious  that  the  separation  of  employments  and  the 
division  of  processes  is  only  possible  with  correspond- 
ing combination.  Combination  or  co-operation  of  this 
kind  is  generally  called  complex.  Even  simple  combina- 
tion, however,  in  which  the  individuals  concerned  do  the 
same  kind  of  work,  has  certain  important  advantages, 
(a)  Some  things  are  beyond  the  power  of  an  individual, 
no  matter  how  long  a  time  he  might  take,  e.g.,  hauling 
up  a  boat,  lifting  heavy  weights,  or  navigating  a  large 
ship,  (i)  If  we  take  into  account  time,  there  are  certain 
operations  which  must  be  done  in  a  limited  time  to  be 
of  any  service.  This  is  especially  the  case  in  agriculture : 
the  land  must  be  prepared,  the  seed  sown,  and  the  harvest 
gathered  all  in  due  season.  The  open-field  system  of  cul- 
tivation furnishes  an  excellent  example  of  this  species  of 
co-operation. 

Again,  many  great  works  can  only  be  accomplished  by 
being  carried  on  continuously  over  a  long  period.  In  this 
way  we  have  a  combination  of  the  work  of  the  dead  with 
that  of  the  living,  as,  for  example,  in  the  construction  of 
railways,  harbours,  and  buildings.  As  already  observed, 
this  species  of  continuous  combination  is  of  especial  im- 
portance in  the  development  of  the  immaterial  factors  of 
the  economic  structure  of  a  society. 

Complex  co-operation  or  combination  will  receive  further 
treatment  in  the  next  chapter  in  connection  with  the  law 
of  '  Increasing  Return.' 

§  5.  Division  of  Labour  is  limited  by  the  Extent  of  the 
Market.  If,  to  take  the  classical  example,  it  takes  eighteen 
men  to  make  a  pin,  it  is  plain  that  pin-making  in  this 
mode  can  only  be  carried  on  advantageously  on  a  large 


PRODUCTION.  113 

scale.  The  extension  of  division  of  labour,  whether  the 
term  be  taken  in  the  broad  or  the  narrow  sense,  is  limited 
by  the  market.  Labour  and  capital  cannot  be  specialised 
to  particular  forms  of  work  unless  these  methods  of  pro- 
duction give  full  employment  to  the  capital  and  labour 
required.  It  follows,  then,  that  an  increase  in  demand 
due,  for  example,  to  the  opening  up  of  foreign  markets 
may  render  possible  a  greater  subdivision  of  labour  and 
capital,  and  Adam  Smith  rightly  insists  that  one  of  the 
principal  advantages  of  foreign  trade  is  found  in  the  con- 
sequent augmentation  of  industry  in  the  home  country. 

Even  in  agriculture,  to  which  the  application  of  the 
principle  is  comparatively  limited,  the  extension  of  the 
market  enables  specialisation  to  be  extended.  The  growth 
of  towns  within  an  agricultural  country  stimulates  the 
production  of  various  minor  commodities.  Thus  the  posi- 
tion of  the  outlying  farmers  in  the  United  States  in 
approving  of  protection  to  manufactures  is  at  any  rate 
intelligible ;  for,  although  they  may  pay  dearer  for  these 
manufactures,  they  may  hope  to  attain  more  than  compen- 
satory prices  for  their  milk,  butter,  eggs,  and  all  sorts  of 
bye-products. 

In  immaterial,  as  much  as  in  material,  production  we 
observe  the  dependence  of  division  of  labour  on  the  extent 
of  the  market.  A  large  university  can  afford  to  encourage 
specialisation  both  in  teaching  and  in  research;  and  the 
work  of  the  universities  in  a  great  country  can  be  supple- 
mented by  colleges  and  training  institutions  for  technical 
or  professional  purposes. 

In  the  country  a  doctor  or  lawyer  is  supposed  to  be  con- 
versant with  the  whole  range  of  law  or  medicine,  whilst  in 
a  great  city  specialisation  is  carried  to  an  extreme. 

The  dependence  in  modern  societies  of  division  of  labour 
upon  an  infinite  series  of  contracts  shows  that  security  and 
exchange  are  of  fundamental  importance  in  the  production 
of  wealth.  The  vital  importance  of  this  apparently  simple 
proposition  will  appear  at  a  later  stage. 


114  PKINCIPLES  OF  POLITICAL  ECONOMY. 

§  6.  Division  of  Labour  and  the  Localisation  of  Industry.1 
As  might  be  anticipated,  and  as  is  abundantly  proved  by 
experience,  the  full  advantages  of  division  of  labour  can 
only  be  realised  by  the  specialisation  of  certain  places  to 
certain  kinds  of  production. 

(a)  Such  specialisation  may  be  originally  due  to  certain 
natural  advantages.  Thus  the  great  trades  of  the  world 
have  generally  been  between  places  in  which  the  natural 
conditions  are  dissimilar.  In  the  world  at  large  there  is 
the  trade  between  the  tropical  and  the  temperate  zones ; 
and  in  every  nation  there  is  the  trade  between  the  towns 
and  the  country.  Mines,  forests,  fisheries,  rivers,  harbours, 
mountains,  plains,  and  other  natural  factors  have  at  various 
times  been  dominant  conditions  in  the  localisation  of  cer- 
tain industries. 

(6)  The  influence  of  natural  conditions,  however,  must 
not  be  exaggerated,  for  in  many  cases  political  or  social 
causes  have  been  the  principal  elements  in  establishing 
certain  industries  in  certain  localities.  Conversely  also 
trades  have  been  driven  from  their  old  seats  by  the  action 
of  governments  and  of  municipal  or  local  authorities.  The 
mediaeval  period  of  English  history  is  very  fruitful  in  ex- 
amples of  this  kind.  Under  the  protection  of  William  the 
Conqueror  a  band  of  Flemings  settled  at  Norwich  and 
established  the  cloth  industry.  For  a  long  period  only 
coarse  cloth  was  made,  the  finer  sorts  being  imported  from 
the  Netherlands.  Simon  de  Montfort  forbade  (A.D.  1264) 
any  cloth  to  be  worn  not  of  English  make,  and  was  prob- 
ably the  first  statesman  to  maintain  that  England  could 
live  on  her  own  resources.  Edward  III.  adopted  the  same 
policy,  and  enacted  that  no  foreign  cloth  should  be  worn 
(except  a  license  had  been  obtained  from  the  king).  He 
also  imported  another  colony  of  Flemings,  and  is  thus 
often  credited  with  founding  the  cloth  and  woollen  manu- 
facture. Henry  VII.  planted  a  colony  of  Flemings  in  York- 

1  This  topic  is  admirably  treated,  with  full  illustrations,  in  Marshall's 
Principles,  Bk.  IV.,  Ch.  X. 


PRODUCTION.  115 

shire.  In  connection  with  the  encouragement  of  the  cloth 
manufacture  we  may  notice  the  curious  change  in  policy 
as  regards  the  exportation  of  wool.  From  being  the  prin- 
cipal export  of  the  country,  and  in  that  way  one  of  the 
principal  sources  of  the  king's  revenue,  it  gradually  became 
the  most  jealously  guarded  of  the  raw  materials  of  the 
kingdom,  and  the  laws  against  the  exportation  of  wool  and 
sheep  were,  as  Adam  Smith  says,  like  the  laws  of  Draco, 
all  written  in  blood.1  There  can  be  little  doubt,  however, 
that  this  policy  did  much  to  establish  the  cloth  manufac- 
ture as  one  of  the  principal  English  industries.  Similar 
protection  was  accorded  to  the  workers  in  horn,  leather, 
and  silk  and  other  materials,  and  in  fact  during  the  Mid- 
dle Ages  the  protection  of  native  industries,  especially  of 
the  higher  grades,  altogether  apart  from  monetary  consid- 
erations, was  fully  developed.  Especially  was  defence 
considered  of  more  importance  than  opulence.  Great  im- 
portance, for  example,  came  to  be  attached  on  this  score 
to  horse-breeding.  A  curious  law  was  passed  in  the  reign 
of  Henry  VIII.  forbidding  the  exportation  of  any  horse 
above  the  value  of  six  shillings  and  eight  pence,  and  the 
law  was  enforced  by  allowing  any  one  to  buy  a  horse  about 
to  be  exported  for  seven  shillings.  In  addition  to  this  a 
tax  of  six  shillings  and  eight  pence  was  imposed  on  the 
export.  The  same  monarch  also  enacted  that  all  weakly 
foals  should  be  killed,  and  only  allowed  the  larger  kinds  of 
horses  to  be  reared.  The  commencement  of  the  superiority 
of  English  horses  is  ascribed  to  this  policy.  Henry  VIII. 
also  forbade  the  exportation  of  metals  in  the  interests  of 
the  makers  of  firearms,  and  imported  several  foreign  gun- 
makers. 

When  it  is  remembered  that  from  the  early  mediaeval 
period  downwards  great  restrictions  have  been  imposed 
upon  foreign  trade,  which  except  as  regards  our  own  coun- 
try still  continue,  and  when  it  is  further  remembered  that 

1  See  his  description  of  the  savage  penalties  imposed  by  Queen  Eliza- 
beth, McCulloch's  edition,  p.  292,  Bk.  IV.,  Ch.  VIII. 


116  PRINCIPLES   OF  POLITICAL  ECONOMY. 

for  a  long  time  the  mutual  jealousy  and  distrust  of  towns 
in  the  same  country  were  as  great  as  is  now  the  case  with 
different  nations,  there  can  be  little  doubt  that  the  localis- 
ation of  industries  has  been  largely  influenced  by  political 
and  social  causes.  Whether  protection  in  various  forms  has 
retarded  or  accelerated  the  progress  of  a  nation  may  be 
a  matter  of  opinion,  but  there  can  be  no  question  that  it 
has  altered  and  continues  to  alter  the  local  distribution  of 
its  industries.1 

It  must  be  observed  that  when  once  an  industry  has  been 
established  in  any  country  or  locality  certain  causes  at 
once  come  into  play  which  tend  to  lead  to  its  continuance.2 
Even  if  the  origin  is  accidental  the  initial  advantage  of 
position  may  sometimes  be  sufficient  to  withstand  compe- 
tition with  superior  natural  advantages.  Both  labour  and 
capital  become  specialised,  and  gain  in  efficiency  through 
continuous  improvements ;  industries  subsidiary  to  the 
principal  industry  grow  up  side  by  side  with  it,  and  the 
means  of  communication  3  are  adapted  to  the  acquisition  of 
materials  and  the  distribution  of  the  product.  The  cotton 
manufactures  of  Lancashire,  the  woollens  of  Yorkshire,  and 
the  small  wares  of  Birmingham  are  striking  illustrations 
of  the  cumulative  force  of  the  advantages  of  localisation. 
At  the  same  time,  however,  it  has  often  been  proved  in  the 
course  of  history  that  these  accumulated  advantages  are  not 
sufficient  to  give  the  locality  a  monopoly,  and  that  to  main- 
tain its  supremacy  it  must  be  the  first  to  adapt  itself  to 
any  new  conditions.  In  the  time  of  the  Tudors,  when 
England  as  a  whole  was  entering  on  a  period  of  the  great- 
est prosperity,  when  the  mediaeval  economic  system  was 
being  broken  up  and  was  giving  place  to  the  beginnings 

1  For  many  other  examples  see  Schanz,  Vol.  L,  pp.  434-480. 

2  See  Rogers,  Six  Centuries,  p.  105,  for  an  interesting  account  of  the 
restriction  of  industries  in  England  in  the  thirteenth  century. 

8  Little  more  than  one  hundred  years  ago  the  Clyde  was  fordable  twelve 
miles  below  Glasgow.  Chisholm,  Comm.  Geography,  p.  232.  Compare 
also  the  Manchester  Ship  Canal. 


PRODUCTION.  117 

of  the  modern  industrial  era,  on  all  sides  complaints  were 
heard  of  the  decay  of  towns  and  of  the  industries  with 
which  they  were  associated.  In  many  cases,  however,  the 
apparent  decay  was  simply  the  result  of  the  restrictive 
regulations  of  the  guilds  and  corporations,  which  were 
driving  old  industries  to  new  localities.1  In  the  same  way, 
in  our  own  times,  the  protection  of  vested  interests  has 
often  checked  development  and  in  the  end  transferred 
the  supremacy  to  other  places. 

The  tendency  to  localisation  is  manifested  also  in  the 
case  of  immaterial  wealth.  Universities,  colleges,  and 
schools  once  fully  established,  have  advantages  with 
which  new  institutions  cannot  at  first  successfully  con- 
tend. The  London  money  market  may  be  traced  back 
to  the  Lombards  and  the  Jews.  Similarly  the  concentra- 
tion of  the  various  professions  in  capital  cities  is  largely 
due  to  inherited  conditions.  Glasgow,  for  example,  in 
proportion  to  its  wealth  and  population  has  fewer  lawyers, 
accountants,  actuaries,  physicians,  and  surgeons  than  Edin- 
burgh.2 In  immaterial  also,  as  in  material  wealth,  we 
have  abundant  examples  of  the  transference  of  supremacy 
through  the  neglect  of  natural,  as  distinguished  from  arti- 
ficial or  accidental,  economic  influences.  The  universities 
of  Italy,  no  less  than  its  commercial  cities,  lost  the  leader- 
ship of  the  world,  and  the  ruins  and  antiquities  of  Athens 
and  Rome  exercise  now  far  greater  influence  over  art 
than  do  the  living  cities. 

§  7.  The  Disadvantages  of  Division  of  Labour.  Taking 
division  of  labour  in  its  broadest  sense,  all  the  evils  con- 
nected with  or  arising  from  production  on  a  large  scale,  from 
specialisation,  and  from  organisation  of  industry,  might 
be  brought  under  the  title  of  this  section.  Such  a  com- 

1  Cunningham,  Growth  of  Industry,  Vol.  I.,  p.  452. 

2  "The  Edinburgh  banks  were  all  established  before  any  of  the  others, 
and  transact  70  per  cent  of  the  entire  banking  business  of  Scotland.    The 
Glasgow  banks  conduct  23  per  cent,  and  the  provincial  banks  7  per  cent 
of  the  business."  —  History  of  Banking  in  Scotland,  by  A.  W.  Kerr. 


118  PRINCIPLES  OF  POLITICAL  ECONOMY. 

plete  enumeration,  however,  is  not  to  be  thought  of  at  this 
stage,  and  indeed  can  only  be  gradually  made  in  the  course 
of  the  work.  At  the  same  time  it  is  convenient  to  indi- 
cate some  of  the  principal  of  these  disadvantages.  Most  of 
them,  it  will  be  seen,  are  not  necessary  and  unavoidable  con- 
sequences of  the  system,  but  rather  accidental  concomitants 
which  by  various  legal  and  moral  remedies  are  capable  of 
removal  or  alleviation.  They  may  be  conveniently  divided 
into  three  groups,  physical,  mental,  and  social. 

(a)  The  physical  evils  are  illustrated  by  the  average 
length  of  life  and  by  the  liability  to  special  diseases  in 
different  industries.  "Almost  every  class  of  artificers," 
says  Adam  Smith,1  "  is  subject  to  some  peculiar  infirmity 
occasioned  by  excessive  application  to  their  peculiar  spe- 
cies of  work.  Ramazzini,  an  eminent  Italian  physician, 
has  written  a  particular  book  concerning  such  diseases." 
Mr.  Bevan,  in  his  volumes  on  Industrial  Classes  and  In- 
dustrial Statistics  generally  refers  to  the  physical  condi- 
tion of  the  work  and  the  consequences  to  health  and 
duration  of  life.  It  is  interesting  to  observe  in  this  topic 
the  danger  of  a  priori  reasoning  even  for  the  purpose  of 
illustration.  It  might  be  thought  that  the  coal-miner's 
occupation  was  peculiarly  unhealthy,  but  this  is  not  the 
case ;  and  but  for  accidents  the  death  rate  would  be  un- 
usually low.  On  the  other  hand,  grinders  of  steel,  until 
recently,  were  very  short-lived.  Workers  in  lace  and  in 
glass  are  liable  to  diseases  of  the  eyes.  "  Shoddy  fever  " 
and  "  wool-sorters'  disease "  and  similar  terms  need  no 
explanation.  The  best  illustration,  however,  is  found  in 
a  perusal  of  the  causes  of  and  the  remedies  introduced 
by  the  factory  legislation.2 

(6)  Of  the  evils  classed  as  mental,  attendant  on  division 
of  labour,  the  monotony  of  the  work  is  generally  supposed 
to  be  the  chief.  This  has  been  well  put  in  the  mot  of 

1  McCulloch's  edition,  p.  37,  Bk.  I.,  Ch.  VII. 

2  See  the  History,  by  E.  von  Plener. 


PRODUCTION.  119 

Lemontez:  "It  must  be  sad  to  reflect  that  one  has  never 
raised  anything  but  a  valve,  nor  made  anything  but  the 
eighteenth  part  of  a  pin."  Mr.  Ruskin  has  expressed 
the  same  idea  in  a  vehement  protest  against  modern 
industry:  "It  is  not,  truly  speaking,  the  labour  that  is 
divided,  but  the  men  —  divided  into  mere  segments  of 
men  —  broken  into  small  fragments  and  crumbs  of  life ; 
so  that  all  the  little  piece  of  intelligence  that  is  left  in  a 
man  is  not  enough  to  make  a  pin  or  a  nail,  but  exhausts 
itself  in  making  the  point  of  a  pin  or  the  head  of  a  nail.  .  .  . 
And  the  great  cry  that  rises  from  all  our  manufacturing 
cities,  louder  than  their  furnaces'  blast,  is  all  in  very  deed 
for  this  —  that  we  manufacture  everything  there  except 
men ;  we  blanch  cotton,  and  strengthen  steel,  and  refine 
sugar,  and  shape  pottery ;  but  to  brighten,  to  strengthen, 
to  refine  or  to  form  a  single  living  spirit  never  enters  into 
our  estimates  of  advantage."  1  Adam  Smith  himself  gives 
countenance  to  the  same  idea  though  in  much  more 
measured  language.  "  The  man  who  works  upon  brass 
and  iron  works  with  instruments  and  upon  materials  of 
which  the  temper  is  always  the  same,  or  very  nearly  the 
same.  But  the  man  who  ploughs  the  ground  with  a  team 
of  horses  or  oxen,  works  with  instruments  of  which  the 
health,  strength,  and  temper  are  very  different  upon  differ- 
ent occasions.  .  .  .  How  much  the  lower  ranks  of  the 
people  in  the  country  are  really  superior  to  those  of  the 
town  is  well  known  to  every  man  whom  either  business  or 
curiosity  has  led  to  converse  with  both."  2  In  support  of 
this  statement,  reference  may  also  be  made  to  the  superior 
intelligence  and  morale  of  sailors,  fishermen,  shepherds, 
and  mountaineers.  At  the  same  time,  however,  when  we 
take  a  broad  survey  it  is  doubtful  if  these  instances  can  be 
considered  more  than  striking  exceptions.  Adam  Smith 
himself  has  shown  that  the  commerce  of  the  towns  led  to 

1  Stones  of  Venice,  11,  VI. 

2  Bk.  I.,  Ch.  X.,  Part  II.     Compare  also  the  passage  Bk.  V.,  Ch.  I., 

Part  II.  e-McCulloch's  edition),  p.  350. 


120  PRINCIPLES  OF  POLITICAL   ECONOMY. 

the  improvement  of  the  country ;  and  as  a  matter  of  history, 
the  city  and  not  the  country  was  the  birthplace  of  freedom. 
The  villein  of  the  Middle  Ages  gained  his  liberty  by  living 
a  year  and  a  day  in  a  town,  and  there  can  be  little  doubt 
that  one  of  the  impulses  that  at  present  drive  the  agricul- 
tural labourers  into  the  cities,  is  the  idea  of  freedom  alike 
in  the  choice  of  employment,  expenditure,  and  recreation. 
It  needs  no  demonstration  that  if  the  world  had  continued 
to  be  peopled  by  millions  of  peasant  proprietors,  or  by 
similar  village  communities,  there  would  have  been  little 
advance  in  the  highest  arts  and  sciences.  Compare,  for 
example,  the  general  economic  condition  of  England  and 
Russia.  In  England,  even  during  the  last  half  century,1 
there  has  been  a  distinct  increase  in  the  numbers  of  the 
higher  grades  of  labour  at  the  expense  of  the  lower.  It 
must  not  be  forgotten  also  that  the  monotony  of  work 
involves  less  mental  strain,  and  leaves  the  worker,  with 
reasonable  hours  of  labour,  energy  and  inclination  for 
self-culture.  The  musical  talents  of  Lancashire  opera- 
tives are  well  known,  and  to  take  a  wider  example, 
the  enormous  circulation  of  cheap  literature  of  excellent 
quality  is  direct  proof  of  the  growth  of  intelligence  on 
the  part  of  the  masses  of  the  people.  In  a  word,  we  ought 
to  expect  that  in  the  end  labour-saving  machinery  would 
save  the  labourer  and  leave  him  mentally  much  more  the 
master  of  himself.  It  is  worth  observing  too  that  at  the 
present  time  degradation  of  labour  is  most  prevalent  in 
those  industries  in  which  there  is  the  least  division  of 
labour.  The  Staffordshire  nailers,  the  London  seam- 
stresses, the  boatmen  on  canals,  and  the  casual  workers 
at  various  nondescript  occupations,  are  far  below  the 
"  hands "  in  the  great  staple  industries  of  the  manu- 
facturing towns.2 

1  See  Mr.  Giffen's  Essay  on  the  Progress  of  the  Working  Classes. 
Essays  in  Finance,  Vol.  II. 

8  Compare  on  the  historical  side  Mr.  Cooke  Taylor's  Modern  Factory 
System.  After  alluding  to  the  "  agony  "  of  the  hand-loom  weavers  and 


PRODUCTION.  121 

(c-)  The  social  evils  attributed  to  division  of  labour  are 
in  general  consequences  of  the  interdependence  of  indus- 
tries and  the  concentration  of  labour  and  capital  in  great 
cities.  It  is  at  least  conceivable  that  the  cotton  famine  of 
the  American  Civil  War  may  at  some  future  time  find  an 
analogue  in  a  famine  in  the  common  acceptation  of  the 
term,  if  in  a  widespread  war  our  command  of  the  seas 
were  lost.  Again,  it  is  always  possible  that  some  inven- 
tion or  discovery  may  throw  large  numbers  of  people  out 
of  employment,  or  may  convert  skilled  into  unskilled 
labour.  The  danger  is,  however,  liable  to  exaggeration. 
For  in  the  first  place  invention,  as  already  pointed  out, 
tends  to  develop  not  by  leaps  and  bounds,  but  by  small 
increments,  and  secondly  from  the  nature  of  the  case, 
though  the  finished  products  of  machinery  are  infinitely 
varied,  mechanical  processes  are  comparatively  simple  and 
limited.  Thus  the  monotony  ascribed  to  machinery  has 
its  advantages  in  increasing  the  mobility  of  labour. 

At  the  same  time  the  evils  connected,  essentially  or 
accidentally,  with  division  of  labour  must  not  be  under- 
rated. The  first  fifty  years  of  the  era  of  machinery  were 
full  of  misery  and  degradation  to  the  operatives  concerned, 
the  race  itself  became  dwarfed  and  stunted  in  mind  and 
body,  and  the  strongest  efforts  to  check  the  evils  were 
called  for  both  from  the  state  and  from  voluntary  asso- 
ciations.1 

the  "  terrible  description  "  of  the  Leicester  stocking-makers,  he  points  out 
that  infant  as  well  as  adult  labour  was  often  cruelly  abused  under  the 
domestic  system,  and  that  "the  system  of  infant  labour  was  at  its  icorst 
and  greatest  height  before  any  one  thought  of  a  factory.'1'' 
1  Cf.  my  essay,  Effects  of  Machinery  on  Wages,  Ch.  II. 


CHAPTER  VIII. 

PRODUCTION  ON  A  LARGE  AND  PRODUCTION  ON  A 
SMALL  SCALE. 

§  1.  Division  of  Labour  tends  to  Production  on  a  Large 
Scale.  That  division  of  labour  when  associated  with 
suitable  auxiliary  capital  naturally  leads  to  the  concentra- 
tion of  industry  and  to  production  on  a  large  scale  was 
first,  I  believe,  distinctly  shown  by  Babbage l  in  discussing 
the  causes  and  consequences  of  large  factories.  Up  to  a 
certain  point  every  increase  in  the  number  of  workers 
renders  greater  specialisation  possible,  and  thus  leads  to  in- 
creased dexterity,  better  classification  according  to  capacity, 
and  more  full  occupation  during  the  time  of  work.  In 
other  words,  as  Dugald  Stewart  said,  division  of  labour 
implies  economy  of  labour.  But  as  already  shown,  division 
of  labour  to  be  effective  involves  also  division  of  capital ; 
and  here  also  it  may  be  said  that  up  to  a  certain  point 
every  increase  in  capital  renders  possible  greater  division 
and  greater  economy.  The  tendency  to  concentration  is 
well  illustrated  by  the  progress  of  English  industry  dur- 
ing the  present  century.  To  take  the  most  obvious  ex- 
ample, factories  have  continuously  increased  in  size,  more 
and  more  complex  machinery  has  been  concentrated  in  our 
mills,  and  the  machinery  has  become  more  and  more  self- 
acting,  involving  for  a  given  output  less  manual  labour. 
Thus  between  1850-75  the  proportion  of  spindles  in  a 
cotton  factory  rose  from  10,857  to  14,130,  and  the  number 
of  power-looms  from  127  to  174.2  Again,  in  1837,3  self- 

1  Economy  of  Machines  and  Manufactures.    The  most  important  points 
are  summarised  by  Mill,  Bk.  I.,  Ch.  IX. 

2  Bevan,  pp.  9,  37,  38.  8  Taylor's  Modern  Factory  System,  p.  338. 

122 


PRODUCTION.  123 

acting  mules  contained  324  spindles;  in  1887  the  ordinary 
size  contained  1080. 

In  other  industries  similar  results  are  found;  in  the 
weaving  of  cloth,  carpets,  stockings,  linen,  silk ;  in  the 
working  of  iron,  steel,  brass,  copper,  tin,  and  lead ;  in 
the  nice  adjustment  of  watches  and  firearms ;  in  shaping 
glass  and  pottery ;  in  the  manufacture  of  jewelry,  buttons, 
boots,  and  shoes ;  finally,  in  making  machinery  itself,  and 
in  fact  in  all  the  great  staples,  the  tendency  to  concentra- 
tion may  be  traced  through  successive  gradations.  In  the 
same  way  ships  have  become  larger  and  larger,  and  steamers 
have  more  and  more  displaced  sailing-vessels.  Railways, 
telegraphs,  and  other  transport  services  have  been  amal- 
gamated. The  large  shop-keeper  has  in  many  cases  sup- 
planted the  small,  and  the  co-operative  store  in  its  turn 
has  displaced  the  large  shop-keeper.  Mines,  fisheries,  and 
most  of  the  extractive  industries  employ  larger  and  larger 
capitals.1 

A  similar  tendency  may  be  observed  in  the  production 
of  immaterial  wealth.  Large  joint-stock  banks  have  in- 
creased their  business  enormously  compared  with  private 
banks ;  insurance  companies  and  friendly  societies  have 
grown  in  wealth  and  numbers ;  and  the  capital  required  to 
start  a  new  daily  paper  is  almost  prohibitive. 

The  general  causes  of  this  tendency  to  production  on  a 
large  scale,  which  is  manifested  under  so  many  different 
forms,  as  already  indicated,  may  be  embraced  under  the 
phrase  economy  of  labour  and  capital,  taking  both  terms  in 
the  widest  sense.  The  particular  ways  by  which  this  econ- 
omy is  effected  vary  in  different  cases,  —  e.g.  in  shoe-making 
and  banking,  —  and  for  the  most  part  are  beyond  the  range 
of  economic  science  and  belong  rather  to  the  art  of  busi- 
ness. There  are,  however,  certain  topics  in  connection 
with  the  management  and  organisation  of  production  on  a 

1  See  Schmoller's  Geschichte  der  deutschen  Kleingewerbe  im  19  Jahr- 
hundert  for  an  excellent  treatment  of  the  growth  of  large  industries  and 
the  displacement  of  small. 


124  PRINCIPLES   OF   POLITICAL   ECONOMY. 

large  scale  which  seem  to  require  more  special  treatment 
than  was  possible  in  considering  the  general  results  of 
division  of  labour. 

§  2.  The  Management  of  Production  on  a  Large  Scale  in 
Manufactures.  The  development  of  production  on  a  large 
scale  in  manufactures  has  been  accompanied  by  a  corre- 
sponding development  of  organisation.  The  Statute  of 
Apprenticeship l  (oth  Eliz.  c.  4)  was  in  many  respects  a 
codification  of  mediaeval  customs  and  regulations  regarding 
industry,  and  even  when  its  provisions  did  not  apply,  or 
had  been  forgotten,  in  most  cases  similar  customary  prac- 
tices prevailed  until  the  industrial  revolution  at  the  close 
of  the  eighteenth  century.  Under  this  old  system  every 
workman  was  compelled  to  serve  a  seven-years'  apprentice- 
ship; the  number  of  apprentices  was  limited,  and  every 
journeyman  had  a  fair  prospect  of  becoming  himself  a 
small  master.  As  late  as  1806,  the  number  of  such  small 
masters,  in  the  environs  of  Leeds,  in  the  woollen  industry 
was  estimated  at  3500.2  There  was  little  difference  be- 
tween the  master  and  the  journeyman,  except  that  the 
master  generally  undertook  the  buying  of  the  raw  material, 
and  the  selling  of  the  finished  goods. 

With  the  growth  of  factories,  the  system  of  appren- 
ticeship (already  condemned  by  Adam  Smith  and  even 
earlier  by  Sir  J.  Child),  although  it  survived  in  many 
cases,  was  abandoned3  as  an  abuse  in  connection  with  the 
employment  of  children,  and  the  statute  was  finally  re- 
pealed in  1814.  The  master,  as  his  business  grew  larger, 
concerned  himself  more  and  more  with  the  general  man- 
agement, leaving  details  to  heads  of  departments  and  sub- 
departments.  Bagehot  has  drawn  a  just  and  instructive 

1  Cf.  Brentano's  Gilds  and  Trades  Unions,  p.  103.     On  the  general 
effects  of  this  Statute  compare  the  adverse  comments  of  Rogers  in  Six 
Centuries.     See  also  Adam  Smith,  Bk.  I.,  Ch.  X.,  Pt.  II.,  and  infra,  Bk. 
II.,  Ch.  XII. 

2  Brentano,  p.  105. 

8  Of  course,  the  custom  of  apprenticeship  still  prevails  extensively.  See 
infra,  Bk.  II.,  Ch.  XII. 


PRODUCTION.  125 

analogy  between  modern  warfare  and  modern  trade  and 
commerce.  "Nowadays  it  is  a  man  at  the  far  end  of 
a  telegraph  wire, — a  Count  Moltke  with  his  head  over 
some  papers, — who  sees  that  the  proper  persons  are  slain, 
and  who  secures  the  victory.  So  in  commerce.  The  prim- 
itive weavers  are  separate  men  with  looms  apiece ;  the 
primitive  weapon-makers  separate  men  with  flints  apiece ; 
there  is  no  organised  action,  no  planning,  contriving,  or 
foreseeing  in  either  trade  except  on  the  smallest  scale ; 
but  now  the  whole  is  an  affair  of  money  and  management ; 
of  a  thinking  man  in  a  dark  office,  computing  the  prices  of 
guns  and  worsteds." l  Objection  may  be  taken  to  the 
apparent  division  of  mankind  into  the  two  classes  of 
'  primitive  '  and  '  nineteenth  century  ; '  but  essentially  as 
regards  the  great  manufacturing  industries  and  the  corre- 
sponding trades  the  contrast  is  well  founded.2 

The  management  of  business  has  itself  become  a  busi- 
ness. Even  in  the  present  century,  in  connection  with  the 
vast  improvements  in  the  mass  of  communications,  —  rail- 
ways, telegraphs,  telephones,  and  the  like,  —  the  conduct 
of  business  has  become  very  different  in  the  last  quarter 
compared  with  the  first.  I  quote  a  passage  from  Mr. 
Cooke  Taylor's  work,  to  which  I  have  already  been  much 
indebted :  "  In  the  first  quarter  of  the  century  England 
was  rather  an  aggregate  of  isolated  districts  and  disunited 
towns  than  one  animated,  close,  compact  kingdom.  Each 
city  was  dependent  on  the  country  in  its  neighbourhood  for 
food  supplies ;  and  many  a  district,  rich  in  mineral  or  agri- 
cultural wealth,  lay  neglected  because  far  from  a  seaport  or 
canal.  The  England  of  to-day  is  the  opposite  of  all  this.  It 
is  one  huge  congeries,  composed  of  various  members,  liter- 
ally bound  together  with  links  of  iron,  and  in  instantane- 
ous communication  with  every  other  member,  and  with  the 

1  Postulates,  p.  84. 

2  The  factory  system  is  not  so  modern  as  is  generally  supposed.     Jack 
of  Xewbury,  who  died  in  1520,  employed  over  1000  persons  in  woollen 
manufacture.  —  Taylor's  Modern  Factory  System,  Ch.  II. 


126  PRINCIPLES  OF  POLITICAL  ECONOMY. 

whole  world.  In  face  of  such  changes  the  factory  system 
tends  to  become  not  only  more  impersonal  than  ever  (the 
employer,  for  instance,  living  no  longer  at,  or  perhaps  near, 
his  works,  and  visiting  them,  it  may  be,  only  occasionally)  ; 
it  tends  also  to  be  less  the  superlative  factor  in  wealth 
creation  than  it  was.  For  of  this  system  of  great  industry, 
partly  founded  on  capitalist  production  and  partly  on  ex- 
traordinary facilities  of  communication,  the  factory  system 
is  now  but  one  available  member,  a  mesh  in  the  ever-widen- 
ing web  of  combined  and  divided  labour,  typified  by  the 
endless  miles  of  iron  road  and  telegraph  wire  that  environ 
it.  The  factory  itself  is  but  one  of  several  productive  in- 
struments :  the  line  of  steamships,  mine,  or  cotton  planta- 
tion, —  all  of  which  may  be  in  the  same  ownership,  and  all 
of  which  alike  claim  intimate  attention.  The  successful 
employer  is  no  longer  he  who  bustles  about  among  his 
work-people  and  customers  as  formerly,  but  one  who  in 
studious  retirement  can  calculate  minute  quantities  with 
the  nicest  accuracy,  and  is  the  greatest  master  of  the 
movements  of  the  market.  Competition  is  not  among  a 
comparatively  few  employers,  and  between  a  growing  or 
decaying  mode  of  manufacture  ;  it  is  co-extensive  with 
every  method  of  employment  practised  under  whatever 
conditions  of  political  or  economical  compulsion  in  every 
quarter  of  the  globe.  The  old  type  of  factory  master  is, 
indeed,  almost  as  extinct  as  the  old  machinery.  His  indi- 
viduality was  first  merged  in  the  mere  capitalist ;  his  very 
identity  is  lost  now  in  the  limited  liability  company  or 
financial  syndicate." l 

It  is  not  so  much  the  management  of  large  masses  of 
labour  and  capital  that  is  characteristic  of  modern  produc- 
tion on  a  large  scale,  as  the  necessity  for  rapid  adapta- 
tion to  ever-changing  and  interdependent  conditions.  The 
mediaeval  cathedral  and  castle  involved  production  on  a 
large  scale ;  they  required  the  eye  of  a  master-genius  both 
in  design  and  execution ;  and  the  building  trades  of  the 
1  Modern  Factory  System,  p.  362. 


PRODUCTION.  127 

period  show  many  points  of  resemblance  to  the  modern 
factory  system.  "  When  cathedrals  and  palaces  were  built 
there  was  but  one  master  —  the  architect  of  the  present 
day.  Between  him  and  the  workmen  there  were  masters 
and  foremen  answering  to  the  masters  and  foremen  of 
modern  factories." l  Strikes  were  numerous,  and  the  gen- 
eral conditions  of  work  were  often  regulated  by  codes 
which  mutatis  mutandis  correspond  to  our  factory  rules. 
The  great  difference  was  in  the  slowness  with  which  such 
large  structures  were  raised. 2 

The  modern  employer  of  labour  (the  entrepreneur,  or 
undertaker)  no  doubt  occupies  a  very  important  place  in 
the  modern  industrial  system  ;  but  the  tendency  is  rather 
to  exaggerate  than  to  under-estimate  his  peculiar  func- 
tions. Scientifically  regarded,  modern  labour  is  infinitely 
complex,  and  passes  by  insensible  gradations  from  the 
lowest  forms  of  manual  work  to  the  highest  professional 
skill.  The  employer  of  labour  is  obliged  to  employ  not 
only  the  lower  but  also  the  higher  grades.  As  the  former, 
however,  are  more  numerous  the  latter  are  sometimes 
altogether  forgotten,  and  thus  it  appears  on  a  superficial 
analysis  that  industrial  society  consists  of  a  very  few  em- 
ployers —  superior  in  natural  ability,  education,  and  espe- 
cially business  capacity  —  and  of  a  large  mass  of  artisans 
and  operatives  —  in  all  these  respects  inferior  to  the 
former  class. 

A  survey  of  the  occupations  of  the  people  revealed  by 
the  census,  and  of  their  incomes  as  shown  in  the  revenue 
returns,  shows  that  such  a  division  of  society  into  one 
class  and  one  mass  is  absurd.  It  is  like  describing  the 
railway  system  of  a  country  as  being  carried  on  by  the 
general  managers  on  one  side  and  the  engine-drivers  and 
porters  on  the  other.  A  moment's  reflection  will  show 
that  engines,  carriages,  bridges,  tunnels,  buildings,  in  brief, 
permanent  way  and  rolling-stock,  must  all  be  designed 

1  Brentano,  p.  80. 

2  Rogers'  History  of  Agriculture  and  Prices,  Vol.  L,  p.  260. 


128  PRINCIPLES  OF  POLITICAL  ECONOMY. 

and  constructed.  Engineers  are  not  contractors,  but  with- 
out the  plans  of  the  engineers  the  contractors  could  not 
begin.  A  railway,  besides,  makes  numerous  demands  on 
the  less  technical  professions  —  lawyers,  bankers,  account- 
ants, stock-brokers. 

What  is  true  of  the  railway  system  is  equally  true  of 
shipping.  The  management  of  unskilled  and  ordinary 
labour,  whether  in  ship-building  or  navigation,  is  only  one 
of  the  higher  forms  of  labour  required.  And  what  is  true 
of  the  transport  services  is  still  more  true  of  industrial 
society  taken  as  a  whole.  Business  management  absorbs 
a  part,  but  only  a  part,  of  the  higher  grades  of  labour,  and 
in  very  few  cases  does  it  appear  to  call  for  the  highest 
ability.  Large  fortunes  are  occasionally  made  in  business, 
and  it  is  naturally  assumed  that  in  all  or  in  most  cases 
they  are  simply  the  fair  economic  reward  for  services  ren- 
dered to  society;  it  is  forgotten  that  much  depends  on 
opportunity  and  coincidence.  The  normal  earnings  of 
employers  qua  employers  are  by  no  means  extravagant, 
and  they  probably  represent  much  more  justly  the  com- 
parative value  of  the  services  rendered.  The  regular  em- 
ployer of  a  thousand  men  may  not  earn  so  good  an  income 
as  the  doctor,  lawyer,  and  clergyman  who  employ  nobody 
except  domestic  servants,  and  yet  there  may  be  no  economic 
injustice.1 

We  must  remember  that  corresponding  to  the  combina- 
tion (voluntary  and  unorganised)  of  use  as  regards  natural 
things  there  is  similar  combination  in  the  employment 
of  persons.  Scientifically  regarded,  professional  men  are 
labourers  who  are  employed  by  a  multitude  of  masters, 
and  at  any  rate  in  his  own  department  (e.g.  law  or  medi- 
cine), the  person  employed  is  superior  to  his  employer. 
In  material  industry,  on  the  other  hand,  it  is  generally 
assumed  that  the  master  or  manager  is  superior  to  those 
employed  by  him ;  but  it  is  quite  possible  that  the  mere 
business  management  may  be  an  easy  matter  compared 
1  Cf.  infra,  Bk.  II.,  Ch.  XIII. 


PRODUCTION.  120 

with  the  technical  skill  required,  when  all  the  labour 
involved  is  taken  into  account.  In  spite  of  the  obvious 
and  almost  organic  interdependence  of  the  parts  of  the 
modern  industrial  system,  we  are  apt  to  look  on  different 
trades  as  quite  isolated,  each  with  one  master  and  many 
men.  We  overlook  the  many  masters  and  one  man  as  is 
the  case  of  the  architect,  the  civil-engineer,  the  chemist, 
and  the  electrician  ;  we  are  still  more  blind  to  the  aid 
afforded  by  the  banker  and  bill-broker  in  the  production  of 
material  wealth. 

§  3.  Counteracting  Causes  to  the  Concentration  of  Labour 
and  Capital.  Production  on  a  large  scale  seems  necessarily 
to  imply  the  concentration  of  labour  and  capital.  Accord- 
ingly one  of  the  principal  positions  of  Socialist  writers, 
such  as  Karl  Marx,  is  that  in  the  natural  development  of 
industry  all  the  capital  of  a  country  will  find  its  way  into 
a  very  few  hands,  and  that  the  way  will  thus  be  prepared 
for  the  assumption  by  the  state  of  the  management  of 
industry.  The  problem  of  the  distribution  of  wealth  may 
for  the  present  be  postponed,  but  it  is  desirable  to  observe, 
in  taking  a  broad  survey  of  the  modern  productive  system, 
that  like  other  tendencies  the  tendency  to  the  concentra- 
tion of  labour  and  capital  is  liable  to  be  counteracted. 

I.  The  localisation  of  industry  may  be  sufficient  to 
obtain  most  of  the  advantages  of  the  large  system  of  pro- 
duction, although,  in  fact,  a  number  of  contiguous  but  inde- 
pendent small  factories  and  workshops  take  the  place  of 
one  large  establishment.  As  Professor  Marshall1  points 
out,  in  his  excellent  treatment  of  this  topic,  internal  and 
especially  external  economies  can  often  be  secured  by  the 
concentration  of  many  small  businesses  under  different 
management  in  particular  localities.  The  localisation  of 
industry  is  of  very  ancient  origin,  and  in  Eastern  towns 
and  cities  we  still  find  particular  quarters  devoted  to  par- 
ticular occupations.  The  localisation  of  industry,  in  some 

1  Principles,  Bk.  IV.,  Ch.  IX.,  X.  See  p.  325  for  an  explanation  of 
the  terms. 


130  PRINCIPLES  OF  POLITICAL   ECONOMY. 

cases,  may  even  lead  to  the  existence  side  by  side  of  the 
domestic  and  the  factory  system.  An  interesting  illustra- 
tion is  furnished  by  the  glove  industry  of  Grenoble,  which 
gives  employment  to  about  25,000  persons,  four-fifths  of 
whom  are  women  and  children.  Division  of  labour  is 
carried  to  such  an  extent  that  each  pair  of  gloves  passes 
through  about  two  hundred  hands.  In  some  cases  the 
sewing  of  the  gloves  is  done  in  the  factories,  but  in  most 
instances  they  are  sent  into  the  mountains,  and  distributed 
by  sewing  contractors  among  the  peasant  women.1 

One  of  the  chief  advantages  of  the  concentration  of 
capital  in  large  factories  is  in  the  economy  of  motive- 
power.  If,  however,  as  seems  probable,  electricity  to  a 
great  extent  can  be  made  to  take  the  place  of  steam,  this 
advantage  will  disappear.  As  I  write,  a  striking  example 
is  afforded  by  the  ribbon  trade  of  St.  Etienne.2  The  city 
council  has  resolved  to  apply  electric  motive-power  to  the 
hand-looms,  the  dynamos  being  driven  by  water  from  the 
city  reservoirs.  At  present  steam  is  but  little  used,  so 
that  we  have  not  so  much  a  reversion  from,  as  a  preventive 
of,  concentration.  In  England,  in  the  last  century,  water- 
power  was  generally  used  in  manufactures,  and  it  is  quite 
possible  that  some  industries  may  again  return  to  their 
old  seats. 

Again,  even  if  the  separation  of  processes  does  involve  a 
certain  loss  of  motive-power,  it  may  be  more  than  compen- 
sated by  the  greater  empirical  skill  of  the  small  masters, 
and  the  keener  watchfulness  over  the  quality  of  the  work, 
and  the  economy  of  material. 

II.  In  connection  with  all  large  industries  there  are  sub- 
sidiary industries,  which  in  size  may  be  ranged  according 
to  a  decreasing  scale.  This  gives  scope  for  the  employ- 
ment of  small  capitals  under  small  masters;  e.g.  black- 
smiths, bell-hangers,  plumbers,  glaziers,  carpenters,  sweeps, 
engravers,  horse-dealers,  house-painters. 

1  For  full  description  see  Board  of  Trade  Journal  for  March,  1892. 
3  Ibid.,  p.  331. 


PRODUCTION.  131 

III.  New  wants  give  rise  to  new  luxuries,  and  new 
luxuries  create  new  wants.  In  such  cases  there  is  often 
required  scientific  or  artistic  skill  which  cannot  be  exer- 
cised on  a  large  scale.  A  glance  at  the  directory  of  any 
large  town,  and,  still  better,  an  examination  of  the  occu- 
pation tables  of  the  census,  will  reveal  numbers  of  employ- 
ments which,  from  the  nature  of  the  case,  must  be  conducted 
on  a  relatively  small  scale.  Obvious  examples  are  offered 
by  sculpture,  painting,  and  the  fine  arts  generally,  and  by 
various  practical  sciences  and  their  accessories. 

In  conclusion,  it  may  be  pointed  out  that  the  world  only 
requires  a  certain  amount  of  things  that  can  be  produced 
uniformly  on  a  large  scale,  and  that,  when  the  simpler 
wants  have  been  satisfied,  the  tendency  to  variation  in 
wants  is  manifested  in  a  differentiation  of  productive  pro- 
cesses. Thus,  every  increase  in  the  wealth  of  a  society  is 
generally  accompanied  by  an  increase  in  the  variety  of  its 
occupations. 

§  4.  Joint-Stock  Companies.  It  is  a  curious  fact  that 
when  production  on  a  large  scale  has  reached  a  certain 
point,  and  capital  has,  in  accordance  with  the  socialistic 
idea  of  development,  become  massed  in  the  hands  of  the 
few,  a  tendency  to  disintegration  sets  in,  so  far  as  the 
ownership  of  the  capital  is  concerned.  Production  still 
goes  on  on  a  large  scale,  but  the  capitalists  become  more 
numerous.  This  result  is  mainly  achieved  by  the  conver- 
sion of  private  firms  into  joint-stock  companies,  a  conver- 
sion which  has  received  a  great  stimulus  in  recent  times 
(from  A.D.  1855,  in  England)  through  the  adoption  and 
extension  of  the  principle  of  limited  liability.1 

It  must  not  be  supposed,  however,  that  companies  are 
of  quite  modern  origin.  "  It  has  for  many  years  been  a 
moot  case,"  wrote  Sir  Joshua  Child  towards  the  end  of  the 
seventeenth  century,  "  whether  any  incorporating  of  mer- 
chants be  for  public  good  or  not."  About  a  century  later 

1  For  a  brief  history  of  the  Companies'  Acts,  see  Leone  Levi's  History 
of  British  Commerce,  Ft.  IV.,  Ch.  XI. 


132  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Adam  Smith,  in  a  celebrated  chapter,1  answered  the  gen- 
eral question  decidedly  in  the  negative  (though  admitting 
some  important  exceptions),  and  supported  his  opinion, 
according  to  his  wont,  by  an  elaborate  historical  inquiry.2 

Speaking  broadly,  companies  may  be  said  to  have  been 
instituted  primarily  for  the  development  of  various  branches 
of  foreign  trade,  and  they  were  divided  into  two  kinds, 
regulated  and  joint-stock. 

Regulated  companies  "resembled  in  every  respect  the 
corporations  of  trades  so  common  in  the  cities  and  towns 
of  all  the  different  countries  of  Europe." 3  Just  as  in 
the  domestic  trade,  a  person  must  obtain  his  freedom  in 
the  corporation,  so  in  the  particular  foreign  trade,  he  was 
obliged  to  become  a  member  of  the  company  which  pos- 
sessed the  monopoly.  At  first  the  right  of  membership 
was  obtained  (as  in  incorporated  trades)  by  being  appren- 
ticed to  a  member ;  but  gradually  heavy  fines  or  entrance 
fees  were  exacted,  and  other  burdensome  restrictions  im- 
posed, so  that  Adam  Smith  concludes  that  "  to  be  merely 
useless  is,  perhaps,  the  highest  eulogy  which  can  ever 
justly  be  imposed  upon  a  regulated  company."  At  the 
same  time,  however,  it  must  be  observed  that  he  allows 
that  such  companies  may  have  been  useful  for  the  first 
introduction  of  certain  branches  of  commerce. 

In  joint-stock  companies,  as  the  name  implies,  the 
members  traded  upon  a  common  stock,  and  not  indepen- 
dently as  in  regulated  companies.  They  differed  from 
private  partnerships  chiefly  in  two  points:  in  the  right 
of  the  shareholder  to  sell  his  shares  without  the  consent 
of  the  other  members,  and  in  not  being  able  to  withdraw 
the  capital  subscribed  except  indirectly  in  this  manner.4 

1  Bk.  V.,  Ch.  I. 

2  For  still  earlier  history,  see  Schanz's  HandcV s-Politik,  Vol.  I.,  Pt.  II., 
Ch.  I. 

*  Adam  Smith,  McCulloch's  edition,  p.  330. 

4  Adam  Smith  adds  erroneously  that  in  a  joint-stock  company  each 
partner  is  bound  only  to  the  extent  of  his  share.  This  was  true  as  against 
his  co-partners,  but  not  as  against  the  public. 


PRODUCTION.  133 

The  management  was  in  general  confined  to  the  directors, 
although  they  were  nominally  under  the  control  of  the 
proprietors. 

Joint-stock  companies  were  held  to  be  superior  to  regu- 
lated companies  in  the  development  of  foreign  trade,  be- 
cause they  were  prepared  to  maintain  forts  and  garrisons, 
and  the  members  had  no  private  trade  that  could  clash 
with  the  general  interests  of  the  company.  Very  great 
abuses,  however,  arose  from  granting  to  private  persons  the 
right  of  making  peace  and  war  in  undeveloped  countries, 
and  the  strictures  of  Adam  Smith  may  well  be  impressed  on 
those  who,  at  the  present  time,  are  anxious  for  the  rapid 
development  of  Africa.  The  history  of  the  East  India 
Company  is  the  most  striking  example  both  of  the  failure 
and  of  the  success  in  different  ways  of  this  kind  of  joint- 
stock  enterprise.  It  is  one  of  the  best  instances  of  the 
injurious  effects  of  a  monopoly.  When  the  monopoly  was 
strictly  maintained,  the  trade  with  India  never  prospered ; 
whenever  it  was  relaxed  through  the  attacks  of  inter- 
lopers, as  they  were  called,  it  increased ;  and  finally,  when 
the  monopoly  was  abandoned,  the  increase  in  trade  was 
enormous.  As  McCulloch  points  out,1  before  the  abolition 
of  the  monopoly  our  trade  with  India  was  not  so  great  as 
with  Jersey  or  the  Isle  of  Man  ;  after  the  abolition  it  fell 
little  short  of  that  with  the  United  States.  As  regards 
the  members  of  the  company  they  gained  indirectly.  They 
did  not  care  for  dividends,  for  if  they  did  not  share  directly 
in  the  plunder  they  shared  in  the  appointment  of  the 
plunderers.2  It  was  under  these  conditions  that  English 
adventurers  came  back  with  the  wealth  and  style  of  "  na- 
bobs "  and  sent  up  the  price  of  seats  in  Parliament.  "  A 
seat  in  Parliament  was  for  sale,  and  they  bought  it  without 
hesitation  or  misgiving ;  ...  as  Lord  Chatham  said,  they 
forced  their  way  into  Parliament  by  such  a  torrent  of  cor- 
ruption as  no  private  hereditary  fortune  could  resist."  3 

1  Note  XX.  in  appendix  to  Wealth  of  Xations.     2  Adam  Smith,  p.  338. 
3  Erskine  May's  Constitutional  History,  Vol.  L,  p.  335. 


134  PRINCIPLES  OF  POLITICAL  ECONOMY. 

And  yet,  on  the  other  hand,  though  it  was  done  with  the 
cruel  rapacity  of  Roman  provincial  Governors,  the  "na- 
bobs "  laid  the  foundation  of  our  Indian  Empire.  A  care- 
ful survey  of  the  history  of  the  East  India  Company  seems 
to  show  that  from  the  first  it  was  supported  by  the  home 
government,  not  as  a  trading,  but  as  a  conquering  body. 
Alike  under  Charles  I.,  Cromwell,  and  Charles  II.,  its 
charter  was  renewed  and  strengthened.  The  privileges 
were  sometimes  obtained  by  briber}-,  as  in  A.D.  1688,  but 
the  continuity  of  policy  from  Elizabeth  onwards  suggests 
the  persistence  of  a  leading  idea,  and  that  idea  appears  to 
have  been  territorial  aggrandisement. 

In  spite  of  these  monopolies  nearly  all  the  companies 
founded  for  the  promotion  of  foreign  trade  as  trading 
bodies  failed  through  mismanagement.1  It  is  not,  then, 
surprising  that  Adam  Smith,  influenced  as  always  by  facts, 
should  have  supposed  that  joint-stock  enterprises  (without 
exclusive  privileges)  could  only  succeed  under  conditions 
in  which  the  management  could  be  reduced  to  methods 
of  routine.  His  reasons  are  :  1st,  the  comparative  want  of 
self-interest  on  the  part  of  the  managers,  when  most  of 
the  money  under  their  control  is  not  their  own ;  and, 
2d,  the  want  of  economy  in  respect  to  small  savings. 
These  reasons,  however,  do  not  seem  of  sufficient  weight 
to  support  his  conclusion,  and  during  the  present  century 
joint-stock  companies  have  increased  greatly  both  in  num- 
bers and  success.  It  is  true  that  in  the  periods  of  inflation 
which  precede  commercial  crises  a  number  of  unsound 
concerns  have  been  floated,  but  the  proportion  of  the 
unsound  to  the  sound  has  steadily  fallen.  Adam  Smith 
was  too  much  influenced  by  the  history  of  the  foreign 
.trade  companies,  and  by  the  speculative  frensy  which  cul- 
minated in  the  South  Sea  Bubble.  It  does  not  seem  diffi- 
cult to  overcome  the  want  of  self-interest  in  the  managers. 
In  the  first  place,  they  only  attain  their  position  after  years 

1  See  Adam  Smith's  quotation  from  the  Abbe  Morellet  on  the  failure 
of  fifty-five  of  these  companies  in  different  parts  of  Europe. 


PRODUCTION.  135 

of  service,  and  they  acquire  an  instinctive  professional 
zeal  and  take  pride  in  success.  And,  apart  from  these 
influences,  they  may  be  encouraged  by  receiving  some 
share  in  the  profits,  and  by  the  hope  of  a  rise  in  salary. 
The  exceptions  allowed  by  Adam  Smith  really  show,  when 
properly  considered,  that  joint-stock  enterprises  may  be 
largely  extended.  He  enumerates  banking,  fire  and  mari- 
time insurance,  construction  and  management  of  canals, 
and  supplying  a  city  with  water.  In  every  one  of  these 
instances  the  greatest  ability,  zeal,  and  fidelity  are  required 
on  the  part  of  the  manager,  and  if  they  can  be  obtained  in 
these  cases  there  seems  no  reason  why  they  should  not  be 
forthcoming  in  others ;  and,  as  a  matter  of  fact,  we  find 
successful  examples  in  shipping,  gas,  tramways,  railways, 
newspapers,  electricity,  distilleries,  and  all  kinds  of  indus- 
trial enterprise.  At  present  the  tendency  is  for  every 
business  that  reaches  a  certain  size  to  be  converted  into 
a  company,  and  although  at  first  the  shares  may  be  few  in 
number,  and  practically  not  open  to  public  sale,  in  time  an 
increased  division  is  certain  to  take  place.  The  limitation 
of  liability  is,  no  doubt,  one  great  inducement ;  but,  apart 
from  this,  there  are  other  real  advantages  connected 
with  joint-stock  companies.  The  principal  seem  to  be  the 
following : 

1°.  Some  undertakings  are  beyond  the  scope  of  private 
capital,  and  the  choice  lies,  if  they  are  to  be  carried  out 
at  all,  between  government  and  joint-stock  management. 
Any  general  objections  to -the  latter  apply,  as  a  rule,  with 
much  greater  force  to  the  former.  British  railways,  for 
example,  compare  very  favourably  with  those  of  countries 
in  which  they  are  controlled  by  the  state.1  Even  the  post- 
office  probably  owes  much  of  its  financial  success  to  its 
monopoly,  which  it  sometimes  guards  with  too  much  zeal 
for  the  public  interest.2 

1  This  question  has  been  admirably  handled  by  Jevons  in  his  Methods  of 
Social  Reform.    See  also  Grierson's  Railway  Rates  English  and  Foreign. 

2  As  in  the  case  of  telephones,  the  delivery  of  letters  by  messengers, 
the  extension  of  postal  facilities  of  remote  districts. 


136  PRINCIPLES  OF  POLITICAL  ECONOMY. 

2°.  Even  if  the  capital  required  is  not  absolutely  too 
large  for  private  persons,  it  may  still  be  relatively  so  large 
as  to  be  better  adapted  for  joint-stock  contributions.  It  is 
certainly  for  the  advantage  of  the  public  that  in  this  case 
companies  should  compete  with  private  traders,  or  other- 
wise the  latter  would  practically  have  a  monopoly,  and  at 
any  rate  could  easily  combine.  Besides  this  a  private 
trader  would  expect  ordinary  business  profits  upon  the 
whole  of  his  capital,  whilst  the  shareholders  of  a  company 
are  satisfied  with  interest  a  little  above  the  ordinary  rate. 
If  a  company  is  earning  more  than  this,  the  fact  becomes 
known,  and  others  are  promoted. 

3°.  There  is  greater  security  in  a  large  capital  widely 
distributed.  Even  when  the  principle  of  limited  liability 
is  adopted,  there  is  often  a  large  amount  of  uncalled  capital, 
especially  in  the  case  of  banks  and  insurance  companies. 
This  ultimate  reserve  adds  greatly  to  the  stability  of  such 
undertakings,  although,  of  course,  it  adds  equally  to  the 
risks  of  the  shareholder. 

4°.  There  is  greater  publicity  in  companies,  and  fraud 
is  not  so  easily  concealed.  It  may  be  observed,  however, 
that  both  as  regards  security  and  publicity,  the  law  (in  the 
United  Kingdom)  appears  to  require  strengthening.  It  is 
satisfactory  to  note  that  the  courts  have  (as  often  happens) 
suggested  the  necessity  for  such  reform  by  construing 
existing  statutes  very  strictly.  The  responsibility  of  direc- 
tors, and  the  publication  of  correct  and  adequate  accounts, 
have  been  rigidly  enforced  by  recent  decisions. 

5°.  Joint-stock  companies  serve  to  collect  small  capitals 
which  would  otherwise  lie  idle.  And  although  the  inves- 
tors can  have  little  knowledge  of,  or  control  over,  the 
management,  by  a  careful  distribution  of  their  funds,  over 
a  number  of  different  concerns,  an  average  interest  may  be 
realised  sufficient  to  neutralise  the  risk.  This  principle 
has  recently  led  to  the  creation  of  various  trust  and  invest- 
ment companies  which,  though  liable  to  abuse,  are  essen- 
tially as  sound  as  other  forms  of  insurance. 


PRODUCTION.  137 

6°.  In  a  private  firm  much  depends  upon  the  individual 
members.  The  death  (or  private  bankruptcy)  of  one 
partner  may  suffice  actually,  or  practically,  to  break  up  a 
business.  In  the  case  of  a  company,  the  death  or  insolvency 
of  a  shareholder  would  make  no  difference,  and  a  change 
of  management  is  easily  effected  when  necessary. 

7°.  The  publicity  attending  the  statement  of  expenses 
and  earnings  of  joint-stock  companies  is  of  great  advantage 
in  throwing  light  on  the  general  condition  of  the  industry 
concerned.  Thus  a  good  idea  of  the  cotton  trade  can  be 
formed  from  the  reports  of  the  companies  which  in  the 
Oldham  district  are  said  to  have  a  capital  of  over  .£3,000,000. 
The  returns  of  coal  and  iron  companies,  and  of  railways, 
tramways,  and  shipping  are  similarly  instructive. 


CHAPTER  IX. 

LARGE  AND  SMALL  FARMING. 

§  1.  Statement  of  the  Question.  In  discussing  any  eco- 
nomic problem  of  a  practical  kind  it  is  obvious  that  we 
cannot  hope  to  obtain  the  precision  that  is  possible  in  ab- 
stract reasoning.  Many  fallacies,  however,  arise  in  the 
application  of  principles  to  practice  from  forgetting  this 
very  obvious  distinction,  and,  as  a  natural  consequence, 
people  are  apt  to  assume  that  any  such  application  is  vain. 
But  the  principles  are  of  service  if  only  in  suggesting  lines 
of  inquiry,  and  in  showing  the  necessity  of  breaking  up  a 
complex  question  into  manageable  fragments.  There  is, 
perhaps,  no  subject  in  the  art  of  political  economy  which 
has  been  more  discussed  than  the  relative  advantages  of 
large  and  small  farms ;  and  authorities  of  equal  magnitude 
are  found  taking  apparently  opposite  views.  The  differ- 
ence, however,  is  more  apparent  than  real,  because  differ- 
ent meanings  have  been  attached  to  the  term  advantage. 
All  that  will  be  attempted  in  the  present  chapter  is,  in  the 
first  place,  to  point  out  the  various  questions  involved,  and 
secondly,  to  enumerate  the  principal  circumstances  that 
must  be  taken  into  account  in  forming  an  estimate  from 
the  point  of  view  of  production. 

§  2.  Gross  Produce  and  Net  Produce.  Even  when  the 
question  is  regarded  solely  as  one  of  production,  and  the 
various  elements  more  properly  treated  of  under  distribu- 
tion are  neglected,  at  the  outset  an  ambiguity  is  discovered. 
The  general  question  of  production  may  be  worded :  Given 
a  certain  amount  of  land,  labour,  and  capital,  will  the  large 

138 


PRODUCTION.  139 

or  the  small  system  of  cultivation  give  the  greater  return  ? 
It  will  soon  appear,  however,  that  we  must  first  of  all  de- 
cide whether  we  mean  the  gross  or  the  net  return.  Nor 
is  this  the  only  ambiguity.  In  either  case,  in  making  the 
comparison,  we  ought  strictly  to  take  the  same  amount  of 
land,  labour,  and  capital ;  but  in  practice  such  strictness  is 
impossible.  In  discussing  the  advantages  of  peasant  pro- 
prietors, for  example,  attention  is  always  directed  to  the 
greater  ardour  and  industry  of  owners  compared  with  hired 
labourers ;  but,  in  reality,  this  assumes  a  greater  quantity  of 
labour  in  the  one  case  than  in  the  other.  Again,  with  re- 
gard to  capital,  the  amount  applied  will  vary  according  to 
the  security  afforded;  witness  the  aphorisms  of  Arthur 
Young.  "  Give  a  man  the  secure  possession  of  a  bleak 
rock  and  he  will  turn  it  into  a  garden ;  give  him  a  nine- 
years'  lease  and  he  will  convert  it  into  a  desert ; "  and  "  the 
magic  of  property  turns  sand  into  gold." 

Even  with  regard  to  the  land  itself  there  is  an  element 
of  uncertainty.  With  different  kinds  of  produce,  for  ex- 
ample, we  can  only  form  a  comparison  of  the  returns  by 
taking  the  money  value,  as  in  the  typical  case  of  grazing 
land  and  arable.  But  here  the  difference  between  the 
gross  and  the  net  returns  may  be  of  vital  importance.  An 
extreme  example  will  best  show  the  nature  of  the  diffi- 
culty. In  Scotland,  on  many  large  estates  in  the  High- 
lands, land  yields  a  higher  rent  under  deer  than  under 
sheep ;  but  when  a  sheep-farm  is  converted  into  a  deer- 
forest,  on  account  of  the  higher  rental,  there  is  no  doubt  that 
the  gross  yield  to  the  land  is  diminished,  —  if  by  yield  we 
mean,  on  the  one  side,  wool  and  mutton,  and,  on  the  other, 
deerskins  and  venison.  But  it  would  be  difficult  to  prove 
to  a  land-owner  that  the  net  yield  of  his  estate  has  been 
diminished  in  spite  of  the  rise  in  rent.  At  the  same  time 
it  would  be  equally  difficult  to  prove  to  the  general  public 
that  the  net  yield  to  the  land  of  the  country,  as  a  whole, 
has  not  been  diminished. 

A  diminution  in  the  gross  produce,  however,  does  not 


140  PRINCIPLES  OF  POLITICAL   ECONOMY. 

necessarily  mean  a  diminution  in  the  net  returns  either  to 
the  individual  or  the  nation.  As  will  appear  subsequently, 
a  check  to  the  gross  production  1  is  a  necessary  condition 
of  the  payment  of  rent,  and  from  the  national  point  of 
view,  it  is  clear  that  after  a  certain  point  labour  and  capital 
will  yield  a  greater  surplus  when  diverted  from  agriculture 
to  manufactures,  as  is  well  shown  by  the  history  of  Eng- 
land during  the  present  century. 

This  position  was  laid  down  with  great  force  by  Quesnay 
and  the  supporters  of  the  so-called  Agricultural  System ; 
the  very  object  of  which  was,  nevertheless,  to  show  that 
land  is  the  only  source  of  riches,  and  agriculture  the  foun- 
dation of  all  wealth,  and  that  manufactures  certainly 
ought  not  to  receive  special  favour  from  the  state  com- 
pared with  agriculture.  The  following  passage  seems 
worth  quoting :  "  Let  lands  devoted  to  the  cultivation  of 
grain  be  joined  together  as  much  as  possible  in  large  farms, 
managed  [exploittes]  by  rich  cultivators ;  for  there  is  rela- 
tively much  less  expense,  and  much  greater  net  produce,  in 
large  agricultural  enterprises  than  in  small.  The  multi- 
plicity of  small  farmers  is  prejudicial  to  the  population. 
That  population  is  most  secure,  and  most  readily  diverted 
into  the  different  occupations  and  industries,  that  divide 
men  into  classes,  which  is  supported  out  of  the  net  prod- 
uce. Every  economy  made  in  the  work  done  by  animals, 
machines,  water-power,  etc.,  returns  to  the  advantage  of 
the  population  and  the  state,  because  the  larger  net  prod- 
uce enables  men  to  procure  a  greater  gain  for  other  ser- 
vices and  other  work."  2 

It  is,  of  course,  possible,  as  Mill  shows  very  clearly,  that, 
although  the  non-agricultural  population  bears  a  less  ratio 
to  the  agricultural  under  small  than  under  large  cultiva- 
tion, it  does  not  follow  as  a  consequence  that  it  will  be 
less  numerous  absolutely.  "  If  the  total  population  agri- 

iBk.  II.,  Ch.  XV. 

2  Maximes  generals  du  Gouvernement  economique  (fun  fioyaume  agri- 
cole. —  (Eui-res  de  Quesnay  (Oncken's  Edition),  p.  334. 


PRODUCTION.  141 

cultural  and  non-agricultural  is  greater,  the  non-agricul- 
tural portion  may  be  more  numerous  in  itself,  and  may  yet 
be  a  smaller  portion  of  the  whole.  If  the  gross  produce 
is  larger,  the  net  produce  may  be  larger  and  yet  have  a 
smaller  ratio  to  the  gross  produce."  l 

§  3.  On  the  Meaning  of  the  Term  Advantage.  Much  of 
the  controversy  on  the  relative  advantages  of  the  two 
systems,  however,  arises  from  the  fact  that  'the  question 
cannot  be  regarded  entirely  from  the  standpoint  of  pro- 
duction. Just  as  in  the  passages  quoted  Mill  is  concerned 
to  show  that  there  may  be  under  the  small  system  a  large 
non-agricultural  population  disposable  for  manufacture, 
commerce,  navigation,  defence,  science,  art,  literature  and 
other  elements  of  national  power  and  well-being,  so  at 
present  the  relative  decrease  in  the  agricultural  population 
of  Great  Britain  is  regarded  with  alarm.  That  is  to  say, 
the  mere  economy  of  production  is  considered  as  only  one 
species  of  national  advantage.  The  health,  both  physical 
and  moral,  of  a  nation  is  held  to  depend  upon  a  large  rural 
population,  and  it  is  assumed  that  the  towns  must  receive 
a  continuous  flow  of  new  blood  from  the  country.  The 
idea  is  by  no  means  new.  The  saying  of  Pliny :  Latifundia 
perdidere  Italiam  ranks  as  a  proverb,  and  Latimer's  lament 
on  the  decay  of  the  yeomanry  is  one  of  the  few  sermons 
that  have  been  quoted  by  economists.2  In  some  countries 
the  number  of  hearths  on  the  large  estates  has  on  mili- 
tary grounds  been  ordained  to  be  kept  up,  and,  speaking 
generally,  it  is  only  in  quite  recent  times  that  land  has 
come  to  be  regarded  simply  as  one  of  the  agents  of  pro- 
duction. Even  in  the  United  Kingdom  at  the  present 
time  there  are  few  who  would  maintain  that  property  in 

1  Mill,  Bk.  I.,  Ch.  IX.,  §  4.     For  further  discussion  of  this  point,  see 
below,  Ch.  X.,  on  the  law  of  diminishing  returns. 

2  Compare  also  the  Brief  Conceipte  touching  the   Commonwealth  of 
England,  by  W.  S.  (A.D.  1588)  :  "  Those  sheepe  is  the  cause  of  all  these 
mischieves,  for  they  have  driven  husbandry  out  of  the  country  by  the 
which  was  increased  before  all  kinds  of  victailles  and  now  altogether 
sheepe,  sheepe,  sheepe." 


142  PRINCIPLES  OF  POLITICAL  ECONOMY. 

land  ought  to  be  placed  on  precisely  the  same  footing  as 
other  forms  of  property,  and  is  in  need  of  no  exceptional 
legislation. 

So  far  as  these  and  similar  topics  appear  to  come  into 
the  province  of  political  economy,  they  naturally  fall  under 
the  department  of  Distribution 1  and  will  be  treated  later 
on.  It  seemed  necessary,  however,  to  prevent  misconcep- 
tion to  state  explicitly  that  the  subject  of  large  and  small 
farms  is  not  merely  a  problem  in  production.2  As  such, 
however,  it  must  be  mainly  considered  in  the  present 
chapter. 

§  4.  The  Economies  of  Large  and  Small  Farming  com- 
pared. It  is  true  that  in  agriculture  under  present 
conditions  division  of  labour  cannot  be  carried  so  far  as  in 
manufactures,  but  Mill's  contention  that  a  single  family 
can  generally  supply  all  the  combination  of  labour  required 
for  the  "  common  farming  operations,"  and  that  when  "  a 
union  of  many  efforts  is  really  needed"  co-operation  in 
some  form  will  answer  the  purpose,  seems  altogether 
exaggerated.  He  allows  indeed  that,  if  the  subdivision 
of  land  is  so  minute  that  the  cultivators  have  not  enough 
to  occupy  their  time,  the  waste  of  productive  power  will 
be  a  great  evil,  but  so  long  as  such  excessive  morcellement 
is  avoided  he  thinks  that  large  farms  have  very  few  ad- 
vantages over  the  small.  The  difficulty  in  forming  an 
estimate  is  mainly  one  of  complete  enumeration ;  a  small 
advantage  in  twenty  different  particulars  may  be  more 
than  sufficient  to  turn  the  scale  against  custom  and 
tradition.  If  the  question  is  considered  from  the  point 
of  view  of  land,  labour  and  capital  —  the  three  great 
agents  in  production  —  respectively,  the  enumeration,  if 
not  complete,  may  be  more  readily  completed  than  if  the 
various  items  are  taken  at  random. 

I.  As  regards  the  land  itself  there  are  certain  advan- 
tages that  can  orrly  be  obtained  from  a  comparatively  large 

1  See  Bk.  II.,  Ch.  IV. 

2  See  Ch.  II.  of  my  book,  Tenant's  Gain. 


PRODUCTION.  143 

surface.  Such,  for  example,  are  the  proper  rotation  of 
crops,  the  due  proportion  of  arable  to  pasture,  the  con- 
venience of  farm  roads,  and  the  adjustment  of  the  drainage 
system.  The  necessity  for  enclosures,  if  improvements 
are  to  take  place,  was  proved  by  a  great  historical  struggle, 
and  it  is  obvious  that  there  must  be  a  great  waste  if  the 
enclosures  are  very  small. 

II.  With  regard  to  the  application  of  capital  there 
are  several  circumstances  in  which  large  farms  have  the 
advantage.  In  buildings  of  all  kinds,  in  implements  and 
machines,  in  breeds  of  stock  and  in  carriage  to  and  from 
the  market,  the  large  farms  have  advantages  which  the 
small  farmers  can  only  partially  obtain  by  co-operation.  It 
does  not  seem,  however,  that  co-operation  is  an  adequate 
substitute,  to  judge  from  recent  accounts  of  the  French 
peasantry.  I  quote  one  or  two  passages  from  the  interest- 
ing work  of  Lady  Verney1:  "Every  day  we  met  pro- 
cessions of  basket  carts  so  small  as  to  be  quite  a  curiosity  ; 
sometimes  fifteen  or  sixteen  were  following  each  other, 
drawn  by  milch  cows,  which  often  go  twenty  miles  in  the 
day,  their  milk  being  diminished  accordingly  sometimes  to 
about  seven  or  eight  pints  a  day.  They  were  carrying 
wood  or  potatoes  or  hay  down  to  sell  and  bringing  back 
manure.  Oxen  walk  slowly  enough,  but  a  cow's  pace  is 
hardly  moving  at  all,  and  to  see  the  thin  beasts  crawling 
slowly  up  the  steep  hills,  each  with  a  man  attending,  was 
strange  indeed.  One  good-sized  wagon  with  three  horses 
would  have  carried  the  whole  lot  in  less  than  a  quarter  of 
the  time  ;  but  here  each  man  prefers  to  wear  out  his  own 
strength  and  that  of  his  cows  at  his  own  pleasure ;  co-oper- 
ation seemed  quite  impossible."  Again,  as  regards  the  use 
of  machines  2 :  "  That  machines  that  are  the  very  life  of 
agriculture  in  America  and  with  us  are  also  occasionally 
to  be  found  in  France  there  is  no  doubt,  but  they  must 
indeed  be  few  when,  during  three  weeks  of  very  careful 

1  Peasant  Properties,  p.  140.     The  reference  is  to  Auvergne. 

2  Ibid,  p.  143. 


144  PRINCIPLES  OF  POLITICAL  ECONOMY. 

investigation  and  inquiry,  after  having  seen  the  corn 
reaped  in  the  North,  the  hay  cut  and  carrying  everywhere, 
and  ploughing  going  on  along  the  whole  line  of  our  jour- 
ney we  had  there  only  once  come  across  a  single  one." 
Again,  as  regards  the  "  inhabited  stables  "  1 :  "  The  ground 
inside  was  like  that  without,  only  a  little  less  wet.  .  .  . 
There  was  only  a  glazed  hole  by  way  of  a  window  that 
did  not  open,  and  light  and  air  came  in  by  the  distant 
door.  .  .  .  As  I  followed  the  mistress  of  the  house, 
four  or  five  large  geese  rushed  past  her  legs  and  nearly 
overset  me.  Here  there  was  not  the  smallest  opening  of 
any  kind,  but  she  undid  the  upper  half  of  the  door,  and  I 
saw  there  a  horse,  a  sick  calf,  and  the  place  for  the  fowls ; 
here  were  two  more  beds  for  the  men,  i.e.,  her  husband  and 
a  farm  boy.  The  smell  and  the  dirt  were  so  intolerable 
that  I  hardly  dared  step  into  the  place.  Everywhere  was 
the  bare  earth,  or  rather  mud.  This  was  by  far  the  largest 
and  richest  homestead  that  we  saw,  and  perhaps  because 
there  was  more  of  it,  it  looked  more  wretchedly  dirty  than 
the  rest." 

III.  With  regard  to  labour,  it  is  plain  that  the  small 
farmers  cannot  make  an  adjustment  of  work  according  to 
capacity  and  so  as  to  fill  up  the  time  in  the  best  manner  or 
to  the  same  degree  as  the  large  farmers.  It  is  also  plain 
that  they  are  not  likely  to  have  the  same  scientific  skill, 
or,  what  is  the  next  best  thing,  to  have  the  command  of  it. 
Nor  are  they  likely  to  make  experiments  or  follow  a  new 
lead  readily.  In  fact  the  one  great  advantage  thai  the 
small  farmer  as  a  rule  possesses  is  inherited  and  empirical 
skill,  which,  however  useful  under  conditions  fixed  by  cus- 
tom, may,  when  conditions  are  changing,  prove  an  obstacle 
in  the  way  of  improvement.  The  devotion  to  labour,  the 
ardour  in  cultivating  to  the  utmost,  and  the  proverbial 
thrift  of  peasant  proprietors  have  also  their  dark  side.  I 
quote  one  more  passage  from  Lady  Verney's  work.2  "  In 

1  Peasant  Properties,  p.  161. 

2  Ibid.,  p.  161. 


PRODUCTION.  145 

England  thrift  appears  to  be  a  great  virtue.  Here  one 
hates  the  very  mention  of  it.  ...  The  sordid,  unclean, 
hideous  existence  which  is  the  result  of  all  this  saving 
and  self-denial,  the  repulsive  absence  of  any  ideal  but  that 
of  'cacher  de  petits  sous  dans  de  grandes  ias'as  an  object 
for  life  is  incredible,  if  it  is  not  seen  and  studied." 

There  can  be  little  doubt  that  in  general  the  British 
agricultural  labourer  is  better  off  than  the  French  peasant 
owner.  It  must,  however,  be  -remembered  that  the  case 
in  France  is  aggravated  by  the  law  of  equal  inheritance, 
and  that  the  excessive  morcellement  is  partly  due  to  the 
partage  forcee.  But  the  aversion  to  make  exchanges  and 
thus  amalgamate  the  little  plots  throws  a  strong  light  on 
the  difficulty  of  co-operation.  And  when  we  find  as  a  fact 
that  apart  from  such  a  law  of  inheritance  there  is  in  small 
farms  an  almost  universal  tendency  to  undue  sub-division, 
it  is,  to  say  the  least,  unscientific  to  argue  as  to  what  might 
happen  if  this  disturbing  cause  were  absent.  In  the  High- 
lands of  Scotland  and  in  Ireland  *  land  has  in  many  places 
been  divided  until  the  plots  are  too  small  to  support  a 
family. 

In  the  county  of  Sutherland  the  crofters  are  compara- 
tively well  off,  and  their  prosperity  is  largely  due  to  the 
strict  enforcement  of  the  estate  rules  against  sub-division 
of  holdings, — rules,  it  may  be  remarked,  which  are  intensely 
disliked  by  the  people  themselves.2 

This  leads  me  to  notice  the  great  difficulty  very  small 
cultivators  must  always  experience  in  making  an  average 
income  over  a  term  of  years.  With  fluctuations  in  seasons 
and  prices,  with  the  danger  of  epidemics  in  man  and  beast, 
with  possibilities  of  blight  and  plagues  of  various  kinds, 
the  small  cultivator  cannot  hope  that  every  year  will  pro- 
vide for  itself  even  a  necessary  minimum  for  subsistence. 
Famine  and  pestilence  have  shown  repeatedly  the  reality 

1  Cf.  Arthur  Young's  Tour  in  Ireland,  Vol.  II.,  Ch.  V. 

2  The  feeling  is  natural.     As  Seebohm  shows,  the  indivisible  holding  is 
a  sign  of  serfdom. 


146  PRINCIPLES  OF  POLITICAL  ECONOMY. 

of  these  dangers.  Accordingly,  I  cannot  refrain  from 
expressing  the  opinion  that  the  attempt  recently  made  in 
Great  Britain  to  establish  a  system  of  small  farms  and 
small  proprietors,  by  the  aid  of  legislation  and  state  credit, 
is  extremely  unwise.  Fortunately,  for  the  present,  it  also 
appears  to  be  impracticable  owing  to  the  conditions  laid 
down.  In  these  days,  however,  an  act  of  Parliament  is 
soon  altered  or  developed.  There  is  a  growing  tendency 
to  make  special  laws  for  special  cases,  regardless  of  the 
consequences  in  the  way  of  analogies,  and  to  reduce  Par- 
liament itself  to  the  level  of  a  shifting  executive  commis- 
sion. Except  perhaps  in  name,  we  appear  to  be  reverting 
to  the  mediaeval  practice  of  enacting  laws  for  a  limited 
period.  Ready  adjustment  to  a  changing  environment  is 
no  doubt  part  of  the  meaning  of  evolution  in  general,  and 
the  rigidity  of  codes  has  long  been  a  matter  of  reproach. 
At  the  same  time,  however,  laws  not  founded  on  broad 
principles  are,  properly  speaking,  not  laws  at  all ;  they  are 
only  political  expedients  which,  like  causes  and  entities, 
ought  not  to  be  multiplied  beyond  necessity. 

To  return  from  this  expression  of  private  opinion  to  the 
enumeration  of  facts,  there  are  several  circumstances  con- 
nected with  land  (or  natural  conditions),  capital,  and 
labour,  which,  though  not  falling  under  the  title  of  econo- 
mies of  production,  exercise  a  powerful  influence  in  deter- 
mining what  system  of  cultivation,  the  large  or  the  small, 
will  be  actually  adopted  in  any  society. 

§  5.  The  Influence  of  Natural  Conditions.  Hitherto  the 
so-called  common  operations  of  agriculture  have  alone 
been  considered.  It  is  obvious,  however,  that  land  is  the 
source  not  only  of  the  great  food  staples,  but  of  various 
raw  materials  (e.g.,  flax,  cotton,  etc.),  and  other  products 
that  are  easily  adapted  for  direct  consumption  (e.g.,  olives, 
grapes,  etc.).  Now  some  of  these  things,  from  the  nature 
of  the  case,  are  best  adapted  for  production  on  a  large 
scale,  whilst  others,  requiring  constant  care  and  minute 
oversight,  are  more  suitable  for  the  small  system.  Of  the 


PRODUCTION.  147 

former,  wool  may  be  taken  as  typical,  of  the  latter,  vines. 
Again,  some  kinds  of  produce  will  not  bear  long  transport 
without  danger,  and  consequently  are  best  adapted  for  the 
neighbourhood  of  towns.  In  some  cases  produce  of  this 
kind  (e.g.,  garden  produce)  can  be  grown  advantageously 
on  a  small  scale,  the  value  being  high  in  proportion  to 
excellence  of  quality.  It  is  to  be  observed,  however,  that 
the  peculiar  kind  of  skill  required  is  not  always  forth- 
coming in  response  to  an  increase  in  demand. 

The  climate  obviously  affects  both  the  kind  of  crop  and 
the  kind  of  labour.  In  many  parts  of  the  South  of  Europe 
artificial  irrigation  is  as  necessary  as  drainage  in  the  North, 
and  to  be  successful,  irrigation  requires  much  care.  The 
climate  is  also  of  importance  as  affecting  the  certainty  or 
uncertainty  of  the  yield. 

The  quality  of  the  soil  is  sometimes  sufficient  to  deter- 
mine the  kind  of  cultivation.  The  mountains  of  Scotland, 
Wales,  and  Northumberland,  as  Adam  Smith  observed, 
seem  destined  by  nature  to  be  the  breeding-places  of  Great 
Britain  for  cattle  and  sheep.  In  France,  the  country  par 
excellence  of  small  farms,  there  are  extensive  tracts  only 
adapted  for  the  large  system  of  farming. 

§  6.  The  Influence  of  Capital  and  the  Rate  of  Profit.  , 
Large  farms  obviously  require,  in  general,  large  capital. 
Thus  in  poor  and  backward  countries,  and  sometimes  in 
newly-settled  districts,  the  holdings  are1  comparatively 
small  on  account  of  the  small  capital  of  the  cultivators. 
As  the  capital  accumulates  the  farms  are  amalgamated. 

The  rate  of  profit  to  be  obtained  is  sometimes  of  pre- 
dominant influence.  The  large  farmer  looks  to  the  profit 
on  his  capital,  whilst  the  small  farmer  looks  to  the  employ- 
ment of  his  own  labour  and  that  of  his  family.  Accord- 
ingly, with  falling  profit,  there  is  often  a  reaction  in  favour 
of  small  farms.  Thus,  as  Rogers1  has  shown,  the  diminu- 
tion of  profit  after  the  Black  Death  consequent  on  the 
increased  cost  of  labour  and  materials,  led  to  a  great 

1  Six  Centuries,  Ch.  X.,  "The  Landlord's  Remedies." 


148  PRINCIPLES  OF  POLITICAL   ECONOMY. 

extent  to  the  abandonment  of  cultivation  on  a  large  scale 
by  the  land-owners,  who  sought  their  remedy  in  letting 
their  land  in  small  holdings  to  the  peasants.  Again,  in 
the  sixteenth  century,  the  profits  of  sheep-farming  led  to  the 
adoption  of  the  large  system,  with  an  outcry  against  rural 
depopulation  as  already  indicated.  At  the  present  time, 
apart  from  the  legislative  stimulus  noticed  in  the  last 
section,  the  fall  in  profit,  and  consequently  in  rent,  has 
led  land-owners  to  look  with  favour  on  small  farms.  On 
the  other  hand,  the  difficulty  is  to  find  suitable  tenants 
with  small  capital  adequate  for  the  purpose,  and  it  is  in 
this  respect  that  the  aid  of  government  is  chiefly  demanded. 

§  7.  The  Influence  of  the  Condition  of  Labour  and  of 
Relative  Wages.  In  small  farming,  the  rate  of  profit  is 
of  less  importance  than  the  remuneration  for  labour. 

If  labour  is  very  dear,  a  man  who  cannot  employ  others 
is  encouraged  so  far  to  employ  himself.  At  the  same 
time  it  is  not  the  absolute  but  the  relative  rate  of  wages 
that  is  generally  of  most  importance.  A  farmer  may  think 
agricultural  labour  dear,  but  the  labourer  may  consider 
his  wages  low  compared  with  the  rates  current  in  other 
employments.  Accordingly,  it  has  often  been  found  that 
a  rise  of  wages  in  the  towns  has  a  prejudicial  effect  on 
small  holdings.  The  tenants  or  owners  are  either  them- 
selves attracted  to  the  towns,  or  send  their  children,  and 
the  small  cultivator  relies  upon  his  family.  It  must  be 
remembered,  also,  that  in  choosing  between  town  and  coun- 
try life  the  labourers  themselves  are  the  judges,  and  it  is 
not  to  be  expected  that  they  will  estimate  pleasures  in  the 
same  way  as  philosophers  and  poets ;  and  few  even  of 
these  privileged  classes  care  to  live  more  than  a  part  of  the 
year  in  the  country  if  they  have  freedom  of  choice. 

§  8.  The  Influence  of  Legislation.  It  has  been  well 
observed  by  M.  Hippolyte  Passy,1  that  the  influence  of 

1  Systemes  de  Culture  en  France,  p.  58.  Throughout  this  chapter  I 
have  been  much  indebted  to  this  work,  which  is  still  probably  the  best  on 
the  subject. 


PRODUCTION.  149 

the  civil  law  on  the  modes  of  culture,  especially  with 
respect  to  the  adoption  of  the  large  or  the  small  systems, 
although  considered  by  many  writers  the  most  decisive 
of  all  causes,  is  in  reality  very  seldom  of  much  importance. 
So  far  as  the  laws  affecting  property  in  land  operate,  he 
maintains  that  they  influence  the  amount  produced  rather 
than  the  modes  of  cultivation.  Large  estates  do  not  neces- 
sarily imply  cultivation  on  a  large  scale,  nor  does  a  wider 
system  of  ownership  necessarily  imply  small  cultivation. 
A  great  estate  may  be  let  out  in  small  farms,  and  a  large 
farmer  may  rent  land  from  several  owners. 

Until  recently  it  was  a  favourite  contention  of  econo- 
mists in  this  country  that  if  the  laws  of  entail  and 
primogeniture  were  abolished  and  a  simple  and  inexpen- 
sive system  of  transfer  adopted,  at  once  a  stimulus  would 
be  given  to  the  creation  of  small  properties  and  small 
farms.  It  is,  however,  very  doubtful  if  the  greatest 
simplification  of  the  law  in  this  direction  (e.g.,  Par- 
liamentary titles  and  compulsory  registration)  would  have 
much  effect.  The  ownership  of  a  large  estate  would  still 
carry  with  it  a  certain  social  status  for  which  people 
would  continue  to  pay  a  high  price,  and  so  long  as  this 
is  the  case  land  must  be  an  unprofitable  investment  for 
agricultural  capital.  In  new  countries  where  great  im- 
provements are  required,  and  where  there  is  always  a 
chance  of  a  rapid  rise  in  value,  the  purchase  of  land,  if 
allowed  by  the  law,  may  be  preferable  to  a  long  lease. 
Again,  in  countries  with  undeveloped  credit  and  rudi- 
mentary methods  of  saving,  land  may  be  regarded  as  the 
only  savings  bank  that  will  yield  any  return  at  all,  the 
choice  being  between  the  purchase  of  land  and  hoarding. 
But  in  Great  Britain,  an  agricultural  labourer  who  had 
saved  enough  money  to  purchase,  a  small  farm  would 
certainly  be  better  advised  to  rent  a  larger  one,  or  to 
emigrate  with  his  capital.  If  legislation  of  such  a  kind 
were  introduced  as  to  impose  all  kinds  of  differential 
burdens  on  large  estates,  and  to  render  it  impossible  to  let 


150  PRINCIPLES   OF  POLITICAL  ECONOMY. 

land,  unless  under  onerous  conditions  (such  as  are  shortly 
indicated  by  the  three  F's  —  namely,  fixity  of  tenure,  free 
sale,  and  fair  rents),1  if  the  social  condition  of  the  country 
were  to  become  such  that  anything  short  of  cultivating 
ownership  would  provoke  hostility,  then  no  doubt  some 
encouragement  would  be  given,  especially  if  state  credit 
were  added,  to  small  tenants  to  purchase  and  to  large 
owners  to  sell.  This  process  has  been  exemplified  in 
Ireland,  in  which  it  may  be  justly  said  that  legislation  has 
done  much  to  break  up  large  estates  and  to  create  small 
owners.  But  the  process  has  not  been  one  of  free  trade 
in  land;  that  method  was  the  first  tried  in  the  act  of 
1860,  and  the  first  found  wanting.2 

The  consideration,  however,  of  the  relation  of  landlord 
and  tenant  naturally  comes  up  for  discussion  in  the  second 
book.3  In  the  meantime  it  is  sufficient  to  emphasise  the 
judgment  of  M.  Passy,  that  the  influence  of  the  civil  law 
is  only  one  element  affecting  the  system  of  cultivation, 
and  generally  not  the  most  important. 

iSeeBk.  II.,  Ch.  IX. 

2  Compare  Richey's  Irish  Land  Laics,  Chs.  VII.,  VIII. 

8  See  infra,  Bk.  II.,  Ch.  IX. 


CHAPTER  X. 

THE    LAW  OP    DIMINISHING    RETURN    AND    THE    LAW  OP 
INCREASING    RETURN. 

§  1.  Preliminary  Explanation.  The  question  of  pro- 
duction on  a  large  and  on  a  small  scale  in  manufactures  is 
closely  connected  with  the  law  of  increasing  return,  and 
the  corresponding  problem  in  agriculture  is  similarly  asso- 
ciated with  the  law  of  diminishing  return.  It  seems  desir- 
able then  to  discuss  these  laws  at  this  stage,1  especially  as 
they  are  fundamental  also  in  the  theory  of  population. 

At  first  sight  nothing  can  appear  more  striking  and 
simple,  when  once  it  is  pointed  out,  than  the  contrast  be- 
tween agricultural  and  manufacturing  industry.  If  Eng- 
land under  present  conditions  were  obliged  (as  in  a  great 
war)  to  dispense  with  the  importation  of  food,  the  conse- 
quent rise  in  prices  would  give  an  immense  stimulus  to 
agriculture ;  capital  and  labour  would,  as  rapidly  as  possi- 
ble, be  devoted  to  farming;  inferior  land  would  be  thrown 
into  cultivation  and  good  land  would  be  cultivated  to  a 
higher  degree.  The  annual  produce  would  of  course  be 
increased,  but  it  would  not  be  increased  in  proportion  to 
the  additional  expenditure.  The  inferior  land  would  not 
yield  so  much  as  the  good  land  did  before,  and  the  higher 
cultivation  of  the  good  land  would  not  be  proportionately 
more  productive.  In  technical  language,  whether  we  con- 
sider the  extensive  or  the  intensive  application  of  more 
capital  to  land,  there  would  be  a  diminishing  return. 

1  Mill  takes  the  law  of  diminishing  return  after  the  treatment  of  the 
growth  of  capital  and  population. 

151 


152  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Apart  from  radical  improvements  in  the  methods  of 
production,  the  cost  of  raising  this  additional  produce 
would  remain  high.  The  fertile  land  is  limited,  and  the 
amount  of  capital  that  can  be  applied  with  advantage  to 
any  portion  of  land  is  also  limited.  To  put  too  much  stock 
on  pasture,  or  too  much  manure  on  arable  land,  would  be 
worse  than  useless. 

Although  it  is  true  that,  under  the  conditions  supposed, 
a  stimulus  would  also  be  given  to  improvements  in  agri- 
culture, we  could  not  expect  that  these  improvements 
would  be  very  rapid  or  very  great.  There  is  little  room 
for  greater  division  or  greater  economy  of  labour,  the  use 
of  machinery  is  comparatively  limited,  and  changes  due  to 
a  better  selection  of  plants  and  animals  are  only  slowly 
accumulative  in  their  effects.  If,  then,  we  consider  not 
merely  the  power  of  increase  under  certain  circumstances, 
but  also  the  probable  progress  under  an  advance  in  the 
arts^of  production,  it  is  natural  to  assume  that  the  influ- 
ence of  the  improvements  will  be  overbalanced  by  the 
decreasing  productiveness  of  the  land,  and  that,  speaking 
generally,  additional  supplies  of  food  can  only  be  obtained 
by  a  greater  proportional  sacrifice  of  labour  and  capital.1 

How  far  this  second  form2  of  the  law  of  diminishing  re- 
turns, which  takes  account  of  radical  changes,  is  on  the 
same  footing  as  the  first,  which  assumes  that  no  such 
changes  occur,  will  require  subsequently  careful  examina- 
tion. In  the  meantime  it  may  be  observed  that  it  found  its 
way  into  English  political  economy  at  a  time3  when,  under 
the  stress  of  the  Corn  Laws  and  a  great  war,  the  demands 
of  an  increasing  population  made  the  recourse  to  inferior 

1  "  It  is  invariably  found  in  the  long  run,"  says  McCulloch,  "  that  this 
is  the  case."  —  Wealth  of  Nations,  Appendix,  Note  III.,  on  "  Rent."    See 
also  Ricardo,  Ch.  V. :  "  The  natural  price  of  all  commodities,  except  raw 
produce  and  labour,  has  a  tendency  to  fall." 

2  The  dynamical  as  distinct  from  the  statical.     Of.  Mill,  Bk.  IV.,  Ch. 

I,  §•  I- 

8  See  an  excellent  paper,  by  Mr.  Cannan,  on  "  The  Origin  of  the  Law 
of  Diminishing  Returns,  1813-15."  —  Economic  Journal,  March,  1892. 


PRODUCTION.  153 

lands  a  necessity.     Its  truth  seemed  obvious  then,  and  has 
usually  been  taken  for  granted  since. 

In  manufactures,1  on  the  other  hand,  it  seems  as  if 
every  increase  in  the  amount  of  capital  and  labour  applied 
will  give  a  more  than  proportionate  return.  There  seems 
no  limit  to  the  economy  of  labour  or  to  the  efficiency  of 
auxiliary  capital.  Only  allow  time  for  new  factories  to  be 
built  and  fresh  labour  to  be  trained,  and,  if  the  raw  mate- 
rial were  forthcoming,  Lancashire  would  clothe  the  world 
with  calico.  Even  with  the  same  methods  of  manufact- 
ure, it  seems  probable  that  some  saving  in  cost  through 
the  larger  scale  of  production  would  take  place  also,  and 
thus  that  the  increase  in  production  would  be  associated 
with  an  increasing  return,  Similarly,  if  we  look  to  the 
t%  natural "  progress  of  improvements  in  manufactures 
through  the  invention  of  new  machines  and  processes,  a 
still  greater  increase  might  be  expected,  and  the  second 
(dynamical)  form  of  the  law  of  increasing  return  seems 
even  more  firmly  established  than  the  first  (statical). 

Here,  again,  the  progress  of  English  manufactures  since 
the  industrial  revolution  towards  the  close  of  last  century, 
seemed  to  confirm  the  results  of  the  method  of  simple 
inspection.  Those  who  enunciated  the  law  of  diminishing 
returns  in  agriculture,  also  contrasted  with  it  the  law  of 
increasing  returns  in  manufactures.  Both  laws  seemed  to 
be  not  only  illustrated,  but  proved,  by  actual  industrial 
conditions. 

The  observer  of  the  present  day,  who  looks  back  over 
the  last  hundred  years,  will  find  much  to  confirm  the  opin- 
ions of  the  earlier  writers.  In  England,  in  the  years  1770, 
1850,  and  1878,  respectively,  the  yield  of  wheat  per  acre 
was  23,  26|,  and  28  bushels,  respectively,  and  the  price  of 
bread  per  Ib.  was  l^t?,  l^c?,  and  l^eJ.  In  the  same  hundred 
years  the  prices  of  meat  and  butter  were  nearly  trebled.2 
And  yet,  during  the  same  period,  very  great  improvements 
had  taken  place  in  agriculture  generally. 

1  Ricardo,  Ch.  V.  2  Caird's  Landed  Interest,  Appendix. 


154  PRINCIPLES  OF  POLITICAL  ECONOMY. 

A  striking  contrast  is  furnished  by  the  cotton  industry.1 
In  1779,  yarn  (40  hanks  to  the  Ib.)  required  in  the  process 
of  manufacture,  14s.  of  labour  and  capital,  in  1882,  only 
3|c?.,  —  that  is  to  say,  the  cost  has  fallen  to  ^  of  what  it 
was.  In  the  meantime,  the  import  of  raw  material  (which 
seems  the  best  test  of  the  amount  manufactured)  has  risen 
from  about  6  million  Ibs.  to  nearly  1800  million  Ibs.,  —  that 
is  to  say,  about  300  times.2  It  is  not  then  surprising  that 
most  economists  have  followed  the  example  of  Senior3  in 
enunciating  as  an  inherent  law  of  manufacturing  industry, 
that  in  it  increased  production  takes  place  at  a  smaller 
cost,  —  the  law  of  increasing  return,  —  whilst  in  agricul- 
tural industry,  increased  production  takes  place  at  a  greater 
cost  —  the  law  of  diminishing  return.  It  is,  however, 
worth  while  recalling  the  guarded  language  of  Mill,  with 
reference  to  Senior's  statement:  "I  cannot  think  that 
even  in  manufactures,  increased  cheapness  follows  in- 
creased production  by  anything  amounting  to  a  law.  It 
is  a  probable  and  usual,  but  not  a  necessary,  consequence."  4 
And  in  the  next  section  he  shows  that  a  similar  criticism 
may  be  applied  to  the  law  of  diminishing  return  in  con- 
nection with  agriculture  and  other  industries  engaged  in 
raising  raw  produce.  As  a  matter  of  fact,  both  laws, 
though  apparently  simple  and  axiomatic,  are  in  reality 
extremely  complex,  and  demand  an  inductive  proof.  The 
law  of  diminishing  return,  as  more  generally  adopted,  may 
be  considered  first. 

§  2.  The  Law  of  Diminishing  Return,  as  applied  to  the  Pro- 
duction of  Corn.  For  the  sake  of  clearness  and  definiteness 
of  exposition,  the  law  of  diminishing  return  may,  first  of 
all,  be  explained  by  taking  the  particular  case  of  English 
arable  land,  or  more  precisely,  the  case  of  the  production 

1  Ellison's  Cotton  Trade,  p.  61. 

2  Ibid.,  pp.  49,  128. 

8  Political  Economy,  p.  86. 

*  Bk.  IV.,  Ch.  XI. ,  p.  2.  See,  also,  for  a  fuller  criticism  on  the  same 
lines,  Sidgwick's  Principles,  Bk.  I.,  Ch.  VI. 


PRODUCTION.  155 

of  English  wheat.  There  are  several  advantages  in  begin- 
ning in  this  way.  In  the  first  place,  most  writers  —  since 
the  first  statement  of  the  law,  —  have,  consciously  or  un- 
consciously, taken  wheat  or  corn  as  typical ;  secondly,  we 
know  that  from  prehistoric  times  down  to  the  present  day 
corn  has  been  grown  in  England,1  and,  thanks  to  the  ardu- 
ous labours  of  Thorold  Rogers,  we  have  for  some  six  cen- 
turies, very  full  and  accurate  accounts  of  the  prices  and 
methods  of  production.  Over  such  a  period  we  ought  to 
be  able  to  give  a  real  meaning  to  those  much  abused 
terms  "  ultimately  "  and  "  in  the  long  run." 

In  the  statement  of  the  pure  theory  it  will  be  conven- 
ient to  use  the  phraseology  which  has  now  been  generally 
adopted.  By  land  on  the  margin  of  cultivation,  is  meant 
that  land  which,  under  the  existing  regime,  it  just  pays  to 
cultivate ;  by  the  marginal  dose  of  labour  and  capital,  is 
meant  the  last  portion  which  it  just  pays  to  apply ;  and  by  the 
marginal  return,  is  meant  the  yield  to  this  marginal  dose. 
It  is  obvious  that  the  marginal  dose  may  be  considered  as 
that  which  is  applied  to  the  worst  land  in  cultivation,  or 
as  the  last  addition  to  high  farming  on  the  better  lands. 
"  What  we  want  to  fix  our  minds  on  is  the  return  to  the 
marginal  dose  ;  whether  it  happens  to  be  applied  to  poor 
lands  or  rich,  does  not  matter  ;  all  that  is  necessary  is  that 
it  should  be  the  last  dose  which  can  be  profitably  applied 
to  the  land."  2 

As  is  naturally  suggested  by  the  explanation  of  the 
terms  just  made,  it  will  be  advantageous  to  give  to  the 
law  (in  the  case  of  arable  land  and  wheat)  two  forms  of 
statement  according  as  we  consider  first  a  unit  (say  acre) 
of  land  of  the  same  fertility,  and  secondly,  the  whole  land 
of  different  qualities  of  any  country  or  industrial  area. 

I.  As  applied  to  one  portion  of  land,  the  law  may  be 
thus  worded :  "  If  to  any  piece  of  land  (other  things  re- 

1  "  From  the  earliest  times  wheat  has  been  the  customary  food  of  the 
people  of  this  country."  —  Rogers,  Vol.  I.,  p.  26. 

2  Marshall's  Principles,  p.  210. 


156  PRINCIPLES  OF  POLITICAL  ECONOMY. 

maining  the  same)  labour  and  capital  (of  the  same  effi- 
ciency per  unit)  be  applied  continuously,  beyond  a  certain 
point,  the  return  per  unit  will  diminish."  In  explanation, 
it  may  be  remarked  that  the  phrase  "  beyond  a  certain 
point "  refers  not  to  the  time  but  to  the  quantity  of  the 
applications  of  labour  and  capital.1  Thus,  in  the  use  of 
ammonia  or  other  chemical  manure,  all  that  is  meant  is, 
that  if  more  than  a  certain  quantity  is  applied  the  benefit 
will  begin  to  diminish,  and,  indeed,  an  excessive  quantity 
would  be  absolutely  injurious  ;  whether  much  or  little, 
however,  is  used,  it  may  all  be  applied  at  the  same 
time. 

The  other  qualifying  clauses  which  may  seem  to  make 
the  statement  of  the  law  unduly  cumbrous  are  also  really 
necessary.  In  saying  "  other  things  remaining  the  same," 
it  is  intended  to  exclude  such  changes  as  arterial  drainage 
of  the  district,  an  alteration  of  climate  through  the  de- 
struction of  forests  and  the  like ;  in  fact,  it  is  assumed 
that  the  environment  of  the  piece  of  land  remains  the 
same. 

The  assumption  that  the  labour  and  capital  considered 
are  of  the  same  efficiency  per  unit  is  practically  equivalent 
to  the  assumption  that  the  arts  of  production  remain  sta- 
tionary. Thorold  Rogers2  has  shown  that  in  the  thir- 
teenth and  fourteenth  centuries  the  rate  of  seed  sown  to 
the  acre  was  about  the  same  as  at  present  —  in  the  case  of 
wheat  about  two  bushels.  But  the  average  yield  per  acre 
was,  during  that  period,  less  than  eight  as  compared  with 
twenty-eight  bushels  under  modern  conditions.  He  shows 
further,  that  this  increase  in  production  is  in  the  main 
due  to  improvements  in  the  methods  of  cultivation  ;  it  is 
not  wrung  from  the  land  by  additional  doses  of  labour 
and  capital,  with  a  continually  diminishing  return  per 
unit. 

1  It  is  not  implied  that  the  land  is  always  exhausted  by  the  previous 
doses,  though  of  course  such  a  case  may  occur. 

2  History  of  Agriculture,  Vol.  I.,  Ch.  III. 


PRODUCTION.  157 

Sir  James  Caird1  has  given  examples  of  changes  in  the 
methods  of  production  of  wheat  in  recent  years.  Thus  the 
double-furrow  plough,  balancing  itself  with  greatly  less 
friction  in  proportion  than  the  single  plough,  is  found  to 
do  the  same  work  with  one  man  and  three  horses  as  two 
single  ploughs  with  two  men  and  four  horses  ;  a  saving 
of  50  per  cent  in  man  power  and  25  per  cent  in  horse 
power.  Examples  might  be  multiplied  indefinitely,  but 
enough  has  been  said  to  make  clear  the  necessity  of  the 
qualification  introduced.  The  law  does  not  state  even  as 
regards  the  production  of  wheat  on  an  acre  of  arable  land, 
that  once  the  point  of  diminish  in  return  has  been  reached, 
an  increase  in  production  from  this  acre  can,  through  all 
time,  only  be  obtained  at  an  increasing  cost ;  but  only  that 
beyond  a  certain  point,  so  long  as  the  arts  of  production 
remain  the  same,  the  law  will  come  into  operation.  Up  to 
this  point,  as  Turgot2  clearly  showed,  eveiy  dose  of  capital 
and  labour  may  give  a  greater  return  than  the  previous 
dose ;  that  is  to  say,  the  law  of  increasing  return  may 
operate,  but  on  a  given  portion  of  land,  with  certain 
methods  of  cultivation,  a  point  will  be  reached  at  which 
the  return  will  begin  to  diminish. 

It  may  be  pointed  out  further  as  regards  the  production 
of  wheat  with  the  same  methods,  that,  when  the  return 
begins  to  diminish,  it  continues  to  decrease  very  rapidly, 
and  indeed  soon  reaches  the  vanishing  point.  In  fact, 
for  practical  purposes,  the  law  really  amounts  to  this : 
that  with  certain  modes  of  cultivation  only  a  limited 
amount  of  capital  and  labour  can  be  applied  to  a  piece  of 
land.  The  conception  of  successive  separate  doses  of  cap- 
ital, each  with  a  corresponding  return,  separately  marked 
off  from  those  preceding,  is  apt  to  give  very  false  impres- 
sions. It  is  often  assumed,  for  example,  that  every  addi- 
tional dose  must  give  some  return  ;  it  is  forgotten  that  the 
return  would  soon  become  negative  or  the  labour  positively 
injurious. 

1  Landed  Interest,  Ch.  II. 

2  See  Mr.  Caiman's  paper,  referred  to  above. 


158  PRINCIPLES   OF   POLITICAL   ECONOMY. 

It  might  be  supposed  that  with  the  qualifications  stated, 
the  law  of  diminishing  return  in  this  simple  form,  as  applied 
to  a  certain  portion  of  land,  is  so  palpably  obvious,  so 
axiomatic,  that  it  could  never  have  been  overlooked. 
There  is,  however,  probably  no  other  economic  law  of  the 
first  importance  which  has  so  often  been  forgotten  or  mis- 
calculated. Mill  himself  has  bestowed  extravagant  praise 
on  the  ardour  and  perseverance  of  peasant  proprietors, 
although  it  is  certainly  true  that  much  of  their  labour  is 
pushed  far  beyond  the  point  of  diminishing  return,  and  is, 
from  the  economic  standpoint,  wasted.1  Nor  is  it  only  the 
magic  of  property  that  gives  the  requisite  stimulus  to  such 
thankless  toil.  Before  recent  legislation  gave  the  Scottish 
crofters  security  of  tenure  and  fair  rents,  they  applied 
labour  to  the  production  of  corn,  —  in  this  case  barley  or 
oats,  —  which  in  most  cases  had  passed  the  point  of  dimin- 
ishing return  in  the  very  first  step  taken.  On  the  extreme 
northern  coast,  I  have  seen  little  patches  of  land  culti- 
vated with  a  waste  of  labour  which  could  hardly  have  been 
surpassed  by  a  peasant  proprietor.  The  soil  itself  often 
barely  covered  hard  rock ;  its  properties  were  renewed  by 
seaweed,  which  women  carried  up  steep  cliffs  in  creels  on 
their  backs.  The  land  was  dug  up  with  the  spade ;  the 
crop,  generally  half  ruined  by  storms,  was  cut  with  the 
sickle  in  little  handfuls.  In  sight  of  this  wretched  labour, 
the  English  smacks  were  making  splendid  fishing. 

Nor  is  it  only  in  production  on  a  small  scale  that  waste 
of  this  kind  occurs.  In  this  same  county  of  Sutherland  the 
late  duke  spent  vast  sums  in  reclaiming  land,  and  in  many 
cases  the  last  state  of  that  land  has  been  worse  than  the 
first,  the  natural  plants  have  vanished,  and  the  corn  and 
roots  will  not  repay  the  planting. 

In  Scotland,  generally,  the  farmers   are   probably   the 

most  enterprising  and  most  efficient  in  the  world ;  but  it 

too  frequently  happens  that  they  themselves  apply,  and 

in  some  cases  induce  their  landlords  to  apply,  capital  be- 

1  See  above,  Ch.  IX. 


PRODUCTION.  159 

yond  this  point  of  diminishing  return.  In  this  case,  there 
is  generally  a  mistaken  calculation  ;  but  the  mistake  is 
often  connected  with  a  vague  idea  that  any  amount  of 
capital  judiciously  expended  on  land  must  be  profitable.1 

It  will  readily  be  conceded,  however,  that  this  too  fre- 
quent neglect  in  practice  of  the  law  of  diminishing  return, 
with  the  consequent  waste  of  effort,  only  emphasises  the 
truth  and  importance  of  the  law  itself.  But  when  the 
practical  difficulties  are  set  aside,  and  the  law  is  guarded 
by  the  requisite  hypothesis,  the  first  thing  that  will  proba- 
bly strike  the  critical  reader  is,  that  a  law  precisely  similar 
applies,  not  only  to  a  piece  of  corn-growing  land,  but  also 
to  every  form  of  auxiliary  material  capital,  —  buildings, 
machinery,  and  the  like,  —  and  applies  equally  to  labouring 
cattle  and  labouring  men.  In  a  factory  of  a  certain  size, 
with  certain  methods  of  production,  only  a  limited  amount 
of  capital  and  labour  can  be  employed  ;  after  a  certain 
point  is  reached  there  will  be  a  diminishing  return  to  suc- 
cessive doses  of  capital  and  to  additional  pairs  of  hands. 
In  a  steam-engine,  up  to  a  certain  point,  the  motive  power 
will  increase  with  every  additional  unit  of  coal  burned; 
but  after  this  point  is  reached  the  return  will  diminish, 
and  ultimately  the  fire  may  be  choked  or  the  boiler  burst. 
A  ship  cannot  be  navigated  at  all  without  a  certain  num- 
ber of  sailors  ;  and  in  this  case  also  it  is  easy  to  formulate 
a  law  of  increasing  return,  which  gradually  merges  into  a 
law  of  diminishing  return.  Similarly,  the  food  of  horses 
and  the  food  of  men  may  be  said  to  follow  this  same  law 
(after  a  certain  point)  with  regard  to  the  efficiency  of  the 
labour  which  they  perform. 

If,  then,  the  law  as  applied  to  land  is  to  be  something 

1  Mr.  Carman  gives  instances  of  the  express  denial  of  the  law  of  dimin- 
ishing return  even  in  the  form  under  consideration.  Compare  also  the 
following  passage  from  Malthus'  Essay  on  Population,  p.  377 :  "  As  Lord 
Kaimes  observes,  a  country  cannot  easily  become  too  populous  for  agri- 
culture, because  agriculture  has  the  signal  property  of  producing  food  in 
proportion  to  the  number  of  consumers." 


160  PRINCIPLES  OF  POLITICAL  ECONOMY. 


more  than  a  particular  case  of  ttrjSev  ayav,  and  is  of  such 
peculiar  importance  as  to  deserve  Mill's  description  of  it  as 
the  most  important  proposition  in  political  economy,  we 
should  expect  to  discover  some  peculiar  property  in  which 
land  differs  from  other  forms  of  capital  or  instruments  of 
production.  Such  a  differential  quality  is  found  in  the 
limited  quantity  of  land,  or  more  strictly  of  superior  land. 

In  any  single  factory  there  is  a  limit  to  the  advantageous 
increase  of  the  labour  and  machinery  employed  ;  but,  for 
practical  purposes,  the  number  of  factories  can  be  indefi- 
nitely increased,  and  equal  quantities  of  labour  and  capital 
will  give  at  least  equal  returns.  If  only  time  is  allowed, 
old  machinery  can  be  replaced  by  new,  and  thus  any 
advantage  obtained  by  one  factory  will  soon  be  open  to 
others.  But  with  land  it  is  not  so  ;  the  better  land  is  lim- 
ited and  the  differences  in  productive  power  are  compara- 
tively permanent.1 

Accordingly,  in  old  countries  in  which  all  the  land  best 
adapted  to  agriculture  or  (to  take  the  same  example  as 
before)  to  corn-growing  has  been  taken  up,  the  produce 
can  only  be  increased  so  long  as  the  arts  of  production 
remain  the  same,  either  by  more  intensive  cultivation  of 
that  land  (with  the  diminishing  return  already  explained) 
or  by  more  extensive  cultivation  in  the  recourse  to  inferior 
land. 

The  limit  of  intensive  cultivation  is  soon  reached,  apart 
from  improvements.  As  a  matter  of  fact,  in  the  case  of 
wheat,  it  is  probable  .that  the  land  which  yields  fifty 
bushels  an  acre  will  cost  no  more  and  possibly  less  to 
cultivate  than  the  land  which  yields  only  fifteen.2  Ac- 
cordingly, whether  the  increase  in  produce  is  a  cause  or  an 
effect  of  the  increase  in  population  (a  point  to  be  discussed 
later),  it  can  only  be  obtained,  in  the  absence  of  improve- 
ments, by  the  cultivation  of  inferior  land.  Thus  we  arrive 

1  Take,  for  example,  the  slopes  of  a  mountain  from  the  plain  to  the 
summit. 

2  This  was  asserted  by  McCulloch  in  1838. 


PRODUCTION.  161 

at  the  second  form  of  the  law  of  diminishing  return 
applicable  to  a  country  or  industrial  area  embracing  lands 
of  different  qualities.  After  a  certain  point  is  reached, 
every  additional  acre  taken  into  cultivation,  the  arts  of 
production  remaining  the  same,  gives  a  diminishing  return 
to  a  given  amount  of  labour  and  capital. 

For  the  reasons  already  given,  it  is  probable  that  the 
cultivation  of  the  wheat-growing  land  of  any  country, 
after  a  certain  stage,  will  pari  passu  become  both  more 
intensive  and  more  extensive.  A  good  example  is  fur- 
nished by  the  progress  of  American l  agriculture.  For  a 
long  period  the  fields  were  systematically  cropped  on  the 
principle  of  obtaining  the  largest  crops  with  the  least 
expenditure  of  labour ;  very  little  capital  was  sunk  in  the 
soil  in  the  way  of  improvement,  and  little  was  done  to  re- 
store its  fertilising  ingredients.  As  a  consequence,  the 
land  long  occupied  gradually  lost  its  fertility,  and  re- 
course was  made  to  more  distant  fields  of  virgin  freshness. 
Distance,  it  may  be  observed  parenthetically,  is  eco- 
nomically as  much  a  species  of  inferiority  as  is  comparative 
sterility,  for  it  increases  the  cost  of  marketing  the  produce, 
and  the  cost  of  procuring  the  articles  which  the  land 
and  the  labourers  require.  As  the  margin  of  cultivation 
was  pushed  further  westward,  in  the  lands  over  which 
"  the  shadow  of  partial  exhaustion  "  had  passed,  the  sys- 
tematic agriculture  of  an  old  state  was  introduced ;  deeper 
ploughing,  better  drainage,  and  natural  and  chemical  fer- 
tilisers were  employed  to  bring  up  and  keep  up  the  pris- 
tine fertility.  In  a  word,  the  extension  of  the  margin  to 
new  lands  was  accompanied  by  corresponding  intensity  of 
cultivation  on  the  old  lands. 

It  has  already  been  implied,  but  the  point  deserves  ad- 
ditional emphasis,  that  the  term  "  inferior  "  as  applied  to 
land  will  vary  with  the  agricultural  regime,  that  is  to  say, 

1  Walker.  Lund  and  its  Rent,  p.  47,  note.  See  also  the  report  of  the 
Swedish  traveller  Kalm,  in  1749,  quoted  by  Adam  Smith,  p.  103,  McCul- 
loch. 


162  PRINCIPLES  OF  POLITICAL  ECONOMY. 

with  the  arts  of  production  and  skill  of  the  cultivators. 
In  the  earliest  times  the  slopes  of  hills  were  the  most  fa- 
voured lands.  In  the  valleys  and  beside  rivers  and  streams 
the  power  of  nature  was  too  great  for  primitive  man.  The 
best  land  was  the  hill-top,  and  the  margin  of  cultivation 
crept  slowly  downwards  into  the  woods  and  marshes.  And 
as  the  margin  extended  the  intensity  of  cultivation  was 
increased ;  it  is  probable  that  many  of  the  terraces  to  be 
seen  on  the  high  ground  in  various  parts  of  Britain  were 
constructed  with  infinite  trouble  by  some  pre-Aryan  tribe, 
just  as  at  present  they  are  in  China.1 

The  high  land  was  considered  superior  in  these  early 
times,  not  only  on  account  of  the  methods  of  cultivation, 
but  by  reason  of  situation ;  for  the  hill-tops  and  headlands 
were  most  easily  defended,  and,  if  the  phrase  may  be  used, 
were  the  centres  of  population. 

During  the  present  century  changes  have  taken  place  in 
England  and  France,  by  which  the  inferior  land  has  really 
become  superior,  although  it  is  still  sometimes  from  old 
association  described  as  poor  land.2 

Without  anticipating,  except  in  a  very  elementary  man- 
ner, the  theory  of  value,  it  may  be  pointed  out  that  the 
margin  of  cultivation  will  advance  or  recede,  other  things 
being  equal,  according  to  the  demand,  which  again  is 
practically  expressed  by  the  price.  Thus,  recently  in 
England,  under  the  influences  of  the  low  prices  caused  by 
foreign  competition,  the  area  of  arable  land  devoted  to 
wheat  has  been  considerably  contracted.  The  inferior 
lands,  for  this  purpose,  have  gone  out  of  cultivation. 

If,  as  throughout  this  section,  the  attention  is  confined 
to  one  kind  of  produce  (wheat),  we  may  consider  the  rent 
which  must  be  paid  to  acquire  fresh  land  for  this  purpose 
as  an  element  in  the  cost  of  production.3  Thus  the  diffi- 

1  Gomme's  Village  Community,  Ch.  IV. 

a  See  Porter's  Progress  of  the  Nation,  Sec.  II.,  Ch.  I.,  p.  152  ;  and 
Passy's  Systemes  de  Culture,  Ch.  II. 

8  This  particular  assumption,  as  will  be  explained  in  treating  the  theory 


PRODUCTION.  163 

culty  of  extending  the  margin  of  cultivation  may  lie  in  the 
fact  that  the  land  is  being  used  for  something  else  and  is 
paying  a  high  rent.  Under  the  pressure  of  high  prices, 
however,  this  difficulty  may  be  overcome.  Thus  it  may 
become  profitable  for  the  time  at  any  rate  —  as  was  too 
often  the  case  early  in  the  century  —  to  break  up  old  pas- 
ture to  grow  corn.  In  this  case  the  land  would  not  be 
inferior,  except  in  the  economic  sense  of  bearing  this  bur- 
den of  rent,  due  to  peculiar  qualities. 

Sir  James  Caird l  has  shown  that  in  time  of  war  the  pro- 
duction of  wheat  in  England  might  be  largely  increased, 
both  by  the  intensive  and  the  extensive  methods.  By  the 
use  of  various  manures,  especially  nitrate  of  soda,  two  or 
more  corn  crops  might  be  taken  successively  from  the  same 
land.  "  If  all  Europe  were  shut  against  us  we  should  be 
quickly  able  to  meet  the  increased  home  demand,  by 
double-cropping  to  the  extent  of  one-tenth  of  our  corn- 
land."  Apart  from  this  resource,  we  have  an  immense 
reserve  power  of  cereal  productions  stored  up  in  our  pas- 
ture lands,  which  in  case  of  need,  as  evinced  by  high  prices, 
can  be  broken  up  for  tillage. 

Before  proceeding  to  notice  the  application  of  the  law 
of  diminishing  return  to  other  kinds  of  produce,  the  argu- 
ment of  this  section  may  be  briefly  summarised.  Whether 
we  consider  an  acre  of  land  or  a  whole  country,  after  a 
certain  point  is  reached,  the  return  to  a  given  amount  of 
labour  and  capital  will  diminish.  It  will  do  so,  however, 
only  under  the  supposition  that  the  arts  of  produc- 
tion, using  the  phrase  in  the  broadest  sense,  remain 
stationary. 

So  far,  then,  the  law  gives  no  countenance  whatever  to 
the  assertion  that  in  the  course  of  time,  or  with  the  prog- 
ress of  population,  or  more  generally,  "  ultimately  and  in 

of  rent,  does  not  conflict  with  the  general  proposition  that  (under  certain 
hypotheses)  price  determines  rent,  and  not  rent  price.  See  infra,  Bk. 
II.,  Ch.  XIV. 

1  Landed  Interest,  Ch.  II.,  p.  19. 


164  PRINCIPLES   OF   POLITICAL   ECONOMY. 

the  long  run,"  the  absolute  cost l  of  production  of  corn 
must  increase,  or  that  the  marginal  return  to  the  marginal 
dose  of  capital  must  diminish.  What  may  happen  at  the 
end  of  time  is  a  matter  for  prophecy  and  beyond  the  range 
of  science,  and  whether  in  the  historical  past  or  the  calcu- 
lable future,  this  has  been  or  will  be  the  case,  depends 
upon  the  resultant  of  a  number  of  very  complex  causes. 
Some  of  these  will  be  discussed  in  the  next  chapter  on  the 
theory  of  population;  and  some  will  be  noticed  immedi- 
ately in  considering  how  the  law  of  diminishing  return 
maybe  counteracted.  In  the  meantime,  the  difficulty  may 
be  illustrated  by  reference  to  one  or  two  eminent  authori- 
ties. Adam  Smith 2  says  that  in  every  different  stage  of 
improvement,  the  raising  of  equal  quantities  of  corn  in  the 
same  soil  and  climate,  will,  on  an  average,  require  nearly 
equal  quantities  of  labour.  The  reason  he  gives  is,  that  the 
increase  in  the  productive  powers  of  labour  will  be  more 
or  less  counterbalanced  by  the  increasing  cost  of  cattle, 
the  principal  instruments  of  agricultural  production.  On 
this  passage,  Thorold  Rogers  observes,  that  far  greater 
quantities  will  be  obtained  by  far  less  labour  as  agriculture 
improves,  and  supports  his  opinion  by  an  appeal  to  history. 
Mill,  when  actually  discussing  the  point,3  says,  that  the 
answer  depends  on  the  conflict  of  the  two  antagonist 
agencies,  increase  in  population  and  improvements  in 
agricultural  skill,  and  allows  that  in  some,  perhaps  in 
most,  societies  both  are  stationary  or  nearly  so,  and  that, 
therefore,  the  cost  of  production  of  food  is,  also,  nearly 
stationary.  In  general,  however,  he  writes  as  if  weighed 
down  by  the  conviction  that  population  will  increase  at  such 
a  rate  as  to  increase  the  cost  of  production  of  food ;  and 
most  of  his  errors  in  the  treatment  of  the  wages  question 
and  the  distribution  of  wealth  may  be  traced  to  this  exag- 
gerated dread.4 

1  For  the  full  explanation  and  limitation  of  this  phrase,  see  infm. 
Bk.  III. 

2  Bk.  I.,  Ch.  XI.,  p.  198,  edition  Rogers.  3  Bk.  IV.,  Ch.  II.,  p.  3. 
4  See  infra,  §  4,  and  also  next  chapter. 


PRODUCTION.  165 

§  3.  The  Law  of  Diminishing  Return  as  applied  to  Other 
Kinds  of  Raw  Produce.  As  regards  most  forms  of  agricul- 
tural produce,  the  law  of  diminishing  return  may  be  stated 
in  similar  terms  and  with  similar  conditions  as  in  the  case 
of  corn.  The  principal  differences  that  arise  are  of  impor- 
tance not  so  much  with  respect  to  the  relative  amounts  as 
to  the  relative  values  of  the  various  sorts  of  produce. 
When  land  is  abundant,  and  may  be  regarded  economically 
as  free,  cattle  and  sheep  can  often  be  reared  with  very 
little  labour  and  expense.  An  ox1  may  be  had  for  the 
trouble  of  catching  it,  and  sheep2  may  be  more  valued 
for  their  wool  than  for  mutton.  As  a  rule,  the  pastoral 
stage  precedes,  at  any  rate  in  importance,  the  cultivation 
of  land  for  cereals,  the  expense  of  the  latter  being  very 
much  greater.  When,  however,  land  has  been  fully 
occupied,  relatively  to  the  stage  of  civilisation,  the  demand 
for  meat  brings  into  play  the  law  of  diminishing  return. 
Various  roots  and  grasses  are  grown  solely  for  the  food  of 
animals,  and  they  are  reared  on  an  "intensive"  system  in 
comparatively  small  spaces.  A  modern  dairy  farm  is 
almost  like  a  factory  in  which  raw  material  is  worked  up. 

Again,  the  most  distant  and  barren  moors  are  brought 
into  use  for  sheep;  bogs  are  drained,  dangerous  places 
fenced,  more  labour  is  employed  in  herding,  and  the  sheep 
are  taken  to  the  low  grounds  to  winter  on  turnips.  By 
these  and  similar  methods  the  number  of  sheep  in  Scot- 
land, for  example,  has,  during  the  present  century,  been 
very  largely  increased,  but  the  increase  has  taken  place  at 
an  increasing  cost. 

Vineyards  afford  a  good  example  of  the  law.  Vines 
more  than  any  plants  appear  to  be  affected  by  the  nature 
of  the  soil,  and  in  consequence  the  cultivation  of  the 
most  favoured  spots  is  pushed  to  the  highest  degree  of 
intensity.  Pari  passu  inferior  wine  is  grown  on  inferior 

1  See  Adam  Smith's  reference  to  Buenos  Ayres  for  cattle.     Bk.  I., 
Ch.  XL,  p.  68,  McCulloch. 

2  /fti'd.,  p.  106,  to  Spain  for  sheep. 


166  PRINCIPLES  OF  POLITICAL   ECONOMY. 

soils.1  In  this  case  the  law  of  diminishing  return  may  be 
said  to  imply  a  diminution  of  quality  rather  than  of 
quantity.  In  other  forms  of  produce,  e.g.,  in  the  cultivation 
of  various  flowers  and  fruits,  the  law  appears  in  the  extra 
cost  involved  in  improving  the  quality  or  in  creating  new 
varieties. 

The  raw  materials  of  clothing  are  derived  partly  from 
plants,  e.g.,  cotton,  or  flax,  etc.,  partly  from  animals,  e.g., 
wool,  skins,  hair,  etc.  The  former  resemble  other  agri- 
cultural products,  but  the  latter  are  often,  as  Adam  Smith 
calls  them,  "  appendages  "  to  other  sorts  of  rude  produce. 
In  the  case  of  these  "  appendages  "  the  law  must  be  sup- 
posed to  apply  to  the  joint  product.  It  is  thus  possible 
that,  owing  to  the  greater  demand  for  one  component  and 
the  limited  demand  for  the  other,  the  oesfc  of  the  latter 
might  fall  greatly.  This,  from  a  variety  of  causes,  has 
recently  happened  in  the  case  of  English  wool. 

Timber  and  fuel  can,  as  a  rule,  in  early  stages  of  society, 
be  obtained  with  little  real  cost.  Forests  are  in  new 
countries  often  looked  upon  as  encumbrances  to  be  re- 
moved in  any  manner.  In  process  of  time  forestry  be- 
comes an  important  art,  and  the  law  of  diminishing  return 
applies  both  extensively  and  intensively. 

Even  in  many  sea-fisheries  the  law  seems  to  apply.  In 
the  herring  fishery,  for  example,  the  fish  are  caught  at 
greater  distances  from  the  shore,  and  the  boats  are  larger 
and  better  equipped.  The  same  tendency  is  shown  still 
more  clearly  in  the  case  of  whales  and  seals. 

Mines  and  quarries  are  subject  to  the  law  in  a  peculiar 
manner.  If  the  necessary  labour  and  capital  are  forth- 
coming production  can  be  increased  without  a  correspond- 
ing marginal  diminution,  that  is  to  say,  as  soon  as  the 

1  "  That  the  vineyard,  when  properly  planted  and  brought  to  perfection, 
was  the  most  valuable  part  of  the  farm,  seems  to  have  been  an  undoubted 
maxim  in  the  ancient  agriculture.  But  whether  it  was  advantageous  to 
plant  a  new  vineyard  was  a  matter  of  dispute  among  the  ancient  husband- 
men, as  we  learn  from  Columella."  — Adam  Smith,  Bk.  I.,  Ch.  XI. 


PRODUCTION.  167 

period  of  transition  is  over.  But  over  a  term  of  years  the 
original  sources  may  be  utterly  exhausted,  and  then  re- 
course must  be  made  to  inferior  sources  of  supply. 
Analogous  cases  are  furnished  by  the  exhaustion  of  the 
natural  fertility  of  land,  and  by  fresh  water  fisheries  and 
wild  animals  where  care  is  not  taken  to  keep  up  the  stock. 

It  will  be  seen  from  this  enumeration  of  various  kinds 
of  typical  raw  produce,  that  the  law  of  diminishing  return 
operates  in  different  modes  and  degrees  in  different  cases. 
If  we  refer  to  the  historical  past  we  shall  find  that  in  some 
instances  —  e.y.,  meat,  milk  —  the  marginal  return  has 
considerably  diminished,  and  that  the  law  holds  good 
dynamically.  In  other  cases,  if  we  contrast  long  periods, 
the  reverse  is  the  case,  as,  for  example,  in  most  mineral 
produce,  in  which  the  arts  of  mining  and  advances  in 
practical  geology  have  more  than  compensated  the  ex- 
haustion of  the  best  seams  or  ores.  Even  in  this  case, 
however,  it  is  true  to  say  that  in  the  absence  of  discoveries 
of  new  mines,  and  with  the  same  extractive  arts  an  increase  | 
of  supply  will  involve  an  increasing  cost: — that  is  to  say, 
the  law  holds  good  statically. 

With  regard  to  the  general  law  of  diminishing  return 
that  is  as  applicable  to  all  sorts  of  raw  produce,  the  best 
evidence  as  to  the  extent  and  degree  of  its  operation  is  to 
be  found  in  the  course  of  prices.  Allowance  must  of 
course  be  made  for  any  exceptional  conditions  of  demand 
or  supply,  and  also  (especially  over  long  periods)  for 
changes  in  the  general  purchasing  power  of  money.  Various 
theoretical  difficulties  involved  in  the  calculation  will  be 
discussed  at  a  later  stage,1  but  for  the  present  purpose  a 
rough  comparison  of  mediaeval  and  modern  prices  will  be 
sufficient  to  illustrate  the  argument.  According  to  Thorold 
Rogers,2  in  comparing  present  prices  with  those  of  five 
hundred  years  ago,  we  ought  to  multiply  the  latter  by 
eight  at  least,  and  more  probably  by  twelve,  or  even  some 

1  Theory  of  Value  and  Prices.     Infra,  Bk.  III. 

2  History  of  Agriculture,  Vol.  I.,  p.  259. 


168  PRINCIPLES   OF  POLITICAL  ECONOMY. 

higher  figure,  to  allow  for  the  change  in  the  general  pur- 
chasing power  of  money.  Taking  the  lowest  multiplier, 
namely,  eight,  and  converting  mediaeval  prices  accordingly, 
we  find  the  average  prices  of  the  fourteenth  century, 
compared  with  the  average  of  the  last  ten  years' l  Avork,  as 
follows:  In  the  earlier  period  wheat  was  about  one-third 
dearer  than  at  present ;  wool  was  three  times  as  dear ;  iron, 
eight  times,  and  for  a  considerable  period  sixteen  times ; 
tin,  two  to  three  times ;  lead,  four  to  six  times ;  and  tallow, 
three  to  five  times.  Meat,  on  the  other  hand,  was  probably 
one-fourth  of  its  present  price,  although  the  difference  in 
quality  to  some  extent  neutralised  this  apparent  advantage. 
The  price  of  fish  was  generally  very  high,  and  foreign 
produce  of  all  kinds  was  also  very  dear. 

The  evidence  of  a  more  direct  character  as  regards  quan- 
tities confirms  the  results  of  the  comparison  of  values. 
The  amount  of  wheat  produced  per  acre  was  about  one- 
third  of  the  present  average ;  cattle  and  sheep  were  very 
small;  artificial  grasses  and  roots  for  winter  use  were 
unknown.  In  fact,  although  probably  the  same  number 
of  people  were  employed  in  agriculture,  —  at  that  time  the 
great  bulk  of  the  population,  —  the  return  to  their  labour 
was  at  the  most  one-seventh  of  what  it  is  at  present.  The 
proportionate  returns  to  mines  and  fisheries,  and  the  other 
extractive  industries,  were  still  less  than  in  agriculture. 

We  are  now  in  a  position  to  see  more  clearly  the  neces- 
sity of  stating  the  law  of  diminishing  return  as  a  tendency, 
which  is  constantly  liable  to  be  counteracted.  If  in  a 
limited  time,  under  certain  conditions,  it  is  necessary  to 
increase  the  supplies  of  raw  produce,  the  law  will  no  doubt 
act  sharply,  as  in  the  period  of  English  agriculture,  to 
which  attention  has  already  been  directed ;  but  we  have 
no  right  to  assume  that  in  the  course  of  time  the  general 
resultant  of  the  complex  forces  at  work  will  be  to  give  a 
lessened  reward  to  the  same  quantity  of  labour.  I  pro- 

1  For  mediaeval  prices  I  have  taken  Rogers'  tables,  Vol.  I.  ;  for  1882-91, 
those  of  Sauerbeck  in  the  Statistical  Journal. 


PRODUCTION.  169 

ceed  to  notice  the  principal  counteracting  causes  in  the 
most  important  case,  namely,  the  food  supplies  of  a  nation. 

§  4.  How  the  Laic  of  Diminishing  Return  may  be  coun- 
teracted. The  chief  practical  importance  of  the  law  of 
diminishing  return  in  agriculture  arises  in  reference  to 
the  conditions  under  which  a  nation  can  obtain  its  food 
supplies,  especially  with  an  increasing  population.  It  is 
on  this  subject  that  Mill,  under  the  influence  of  Ricardo,1 
made  the  gravest  error  in  his  work,  an  error  which  vitiated 
the  larger  part  of  his  treatment  of  the  wages  question. 
Poverty  and  low  wages2  he  ascribed  almost  entirely  to 
over-population,  and  by  over-population  he  meant  the 
pressure  of  population  on  the  means  of  subsistence,  with 
the  consequent  recourse  to  inferior  lands  or  more  niggardly 
processes. 

"When,"  says  Mill,  "for  the  purpose  of  raising  an  in- 
crease of  produce  recourse  is  had  to  inferior  land,  it  is 
evident  that  so  far  the  produce  does  not  increase  in  the 
same  proportion  with  the  labour.  The  very  meaning  of 
inferior  land  is  land  which  with  equal  labour  returns  a 
smaller  amount  of  produce."  3 

In  this  sentence,  however,  he  overlooks  the  fact  that 
inferiority  is  purely  relative ;  his  assertion  is  true  only  on 
the  assumption  that  the  arts  of  agricultural  production 
are  absolutely  stationary. 

It  is  perfectly  true  —  and  I  hasten  to  admit  —  that  Mill 
himself  goes  on  to  give  what  is  probably  the  most  complete 
account  yet  published,  of  the  modes  in  which  this  law  of 
diminishing  returns  may  be  counteracted.  The  law  itself, 
he  states  explicitly,  is  a  tendency  which  may  be  and  some- 
times is  for  long  periods  held  in  check.  The  resultant 
effect  does  not  depend  on  a  single  principle,  but  on  two 
antagonising  principles,  and  the  agency  in  constant  antag- 
onism to  the  law  of  diminishing  return  is  no  other  than 

1  Ricardo's  Principles,  Ch.  II.,  "On  Rent." 

2  Cf.  Mill,  Bk.  II.,  Ch.  XIII.,  and  Bk.  IV.,  Ch.  III.,  IV. 
•MU1,  Bk.  I.,  Ch.  XII.,  and  §2. 


170  PRINCIPLES  OF  POLITICAL  ECONOMY. 

the  "  progress  of  civilisation."  This  expression  Mill  pro- 
ceeds to  expand  into  a  series  of  important  influences. 
There  are  agricultural  improvements  which  enable  the 
land  to  yield  a  greater  absolute  produce  without  an  equiv- 
alent increase  of  labour,  e.g.,  the  disuse  of  fallows  by 
rotation  of  crops,  the  introduction  of  new  roots,  better 
knowledge  of  manures,  improved  breeds  of  cattle,  etc. 
There  are  next  improvements  which  diminish  the  labour 
required  without  increasing  the  capacity  of  the  land  to 
produce,  e.g.,  new  machinery,  more  skilful  economy  of 
labour  and  capital.  There  are  improvements  also  in  the 
means  of  communication,  which  diminish  the  cost  of  instru- 
ments and  materials,  and  also  the  cost  of  completing  the 
act  of  production  by  putting  the  commodity  in  the  hands  of 
the  consumer.  This  leads  up  to  the  mechanical  inventions 
which  apparently  have  no  direct  bearing  on  agriculture, 
but  which  enable  a  given  amount  of  food  to  be  obtained 
with  less  labour,  e.g.,  new  modes  of  working  iron,  improve- 
ments in  mills,  etc.  Then  a  still  broader  view  is  taken  of 
the  whole  industry  of  a  country,  and  it  is  maintained  that, 
even  if  the  efficiency  of  labour  in  agriculture  were  to 
diminish,  still,  from  the  national  point  of  view,  that  of 
other  industries  might  more  than  proportionately  increase, 
so  that  on  the  whole  the  country  would,  even  as  regards 
its  food,  have  more  abundant  supplies ;  the  food  might  be 
dearer,  but  there  would  be  more  to  buy  it  with,  and  the 
benefit  might  even  extend  to  the  poorest  class.  Thus 
Mill  arrives  at  the  position  that  there  is  no  possible  im- 
provement in  the  arts  of  production  (i.e.,  not  of  agriculture 
only,  but  generally)  which  does  not  in  one  or  another 
mode  exercise  an  antagonist  influence  on  the  law  of  dimin- 
ishing return  to  agriculture.  Even  yet  the  climax  of  the 
conclusion  has  not  been  attained,  for  we  are  further  assured 
that  improvements  in  government  and  almost  every  kind 
of  moral  and  social  advancement  operate  in  the  same  man- 
ner, e.g.,  improvements  in  land  laws,  in  education,  and  in 
the  friendly  relations  of  capital  and  labour.  Finally,  we 


PRODUCTION.  171 

are  told  that  there  is  scarcely  any  possible  amelioration  of 
human  affairs  which  would  not,  among  its  other  benefits, 
have  a  favourable  operation,  direct  or  indirect,  upon  the 
productiveness  of  industry. 

Surely  in  the  whole  range  of  social  philosophy  it  would 
be  difficult  to  discover  a  more  striking  instance  of  the 
overbearing  influence  of  a  dominant  idea.  In  spite  of  the 
enumeration  of  counteracting  causes,  of  which  the  above  is 
an  incomplete  summary,  Mill  introduces  the  whole  ques- 
tion with  an  emphatic  passage  which  leaves  no  doubt  as 
to  the  impression  the  law  of  diminishing  return  had  made 
upon  his  own  mind :  "  This  limited  quantity  of  land  and 
limited  productiveness  of  it  are  the  real  limits  to  the  in- 
crease of  production.  That  they  are  the  ultimate  limits 
must  always  have  been  clearly  seen.  But  since  the  final 
barrier  has  never  in  any  instance  been  reached;  since  there 
is  no  country  in  which  all  the  land  capable  of  yielding 
food  is  so  highly  cultivated  that  a  larger  produce  could 
not  (even  without  supposing  any  fresh  advance  in  agri- 
cultural knowledge)  be  obtained  from  it,  and  since  a  large 
portion  of  the  earth's  surface  still  remains  entirely  uncul- 
tivated, it  is  commonly  thought,  and  is  very  natural  at 
first  to  suppose,  that  for  the  the  present  all  limitation  of 
production  or  population  from  this  source  is  at  an  indefi- 
nite distance,  and  that  ages  must  elapse  before  any  practi- 
cal necessity  arises  for  taking  the  limiting  principle  into 
consideration.  I  apprehend  this  to  be  not  only  an  error, 
but  the  most  serious  one  to  be  found  in  the  whole  field  of 
political  economy.  The  question  is  more  important  and 
fundamental  than  any  other;  it  involves  the  whole  sub- 
ject of  the  causes  of  poverty  in  a  rich  and  industrious 
community."  Further  criticism  of  this  position  may  be 
deferred  to  the  chapter  on  the  theory  of  population. 

§  5.  The  Law  of  Increasing  Return.  The  law  of  increas- 
ing return  is  the  exact  counterpart  of  the  law  of  diminishing 
return,  and  requires  to  be  stated  with  similar  limitations 
and  hypotheses.  Adam  Smith  introduces  the  advantages 


172  PRINCIPLES   OF  POLITICAL   ECONOMY. 

of  division  of  labour  by  calling  attention  to  the  "great 
increase  of  the  quantity  of  work  which,  in  consequence  of 
the  division  of  labour,  the  same  number  of  people  are 
capable  of  performing."  This  may  be  considered  as  the 
simplest  form  of  the  law  of  increasing  return ;  given  a  cer- 
tain amount  of  labour  and  capital,  the  return  increases  by 
dividing  the  work  to  be  done  in  a  more  economical  manner. 
So  far,  then,  the  law  is  practically  a  summary  statement 
of  the  principle  of  division  of  labour,  and  whenever  this 
principle  can  be  adopted  or  extended  an  increasing  return 
is  forthcoming. 

Thus  under  certain  conditions  we  may  have  an  increas- 
ing return  to  the  labour  and  capital  devoted  to  agriculture. 

Recent  writers,  however,  have  in  general  stated  the  law 
not  so  much  with  reference  to  the  better  employment  of  a 
given  amount  of  labour  and  capital,  as  with  reference  to  the 
results  of  employing  additional  amounts  in  any  industry. 
In  this  form  the  law  may  be  thus  expressed :  Under  cer- 
tain conditions  every  additional  unit  of  productive  power 
gives  more  than  proportional  returns.  This  it  does  by  ren- 
dering possible  various  internal  and  external  economies  (to 
adopt  Professor  Marshall's  quasi-technical  language)  which 
on  a  smaller  scale  could  not  be  carried  out.  American 
economists  in  particular,  under  the  influence  of  the  con- 
ditions of  progress  in  their  own  country,  have  laid  great 
stress  on  the  importance  of  a  growth  in  numbers,  on  the 
ground  that  the  average  earnings  and  the  productive 
capacity  of  the  people  would  increase ;  especially  in  the 
case  of  agriculture  they  maintain  that  as  population  be- 
comes more  dense  it  is  possible  to  make  improvements  in 
roads  and  the  means  of  communication  generally,  and 
these,  as  Adam  Smith  said,  are  the  most  important  of  all 
agricultural  improvements. 

English  economists,  on  the  other  hand,  under  the  influ- 
ence of  the  extraordinary  development  of  manufactures 
during  the  present  century,  have  been  inclined  to  suppose 
that  the  law  applies  in  a  peculiar  manner  to  manufactures; 


PRODUCTION.  173 

that  in  manufacturing  industry  its  action  is  normal  and 
constant,  whilst  in  agriculture  and  the  extractive  indus- 
tries its  action  is  only  occasional  and  intermittent. 

There  is  reason  to  believe,  however,  that  those  who  lay 
stress  on  the  increasing  return  in  manufactures,  as  con- 
trasted with  the  diminishing  return  in  raw  produce,  have 
unconsciously  included  in  the  one  case  and  excluded  in 
the  other  a  hypothesis  of  vital  importance.  They  have 
assumed,  namely,  that  in  manufactures  the  progress  of 
invention  in  mechanical  and  chemical  processes  will  be 
continuous  and  indefinite,  whilst  in  raw  produce  improve- 
ments in  production  will  be  comparatively  unimportant 
and  intermittent.  But  invention  is  a  very  different  thing 
from  economy,  whether  external  or  internal,  and  we  have 
no  right  to  assume  that  invention  will  be  increased  as  a 
necessary  consequence  of  that  division  of  labour  and  pro- 
duction on  a  large  scale.  It  is  quite  possible,  and  in  my 
opinion  it  is  probable,  that  during  the  next  century,  owing 
to  the  advances  of  chemistry  and  other  practical  sciences, 
the  progress  of  invention  may  be  more  marked  in  the 
acquisition  of  raw  produce  than  in  its  manufacture. 

Adam  Smith,1  in  treating  of  the  fall  in  the  price  of  manu- 
factures, is  careful  to  state  that  the  natural  effect  of  im- 
provement is  to  diminish  gradually  the  real  price  (i.e.,  the 
labour  required)  of  almost  all  manufactures,  and  he  ex- 
pressly mentions  the  use  of  better  machinery.  He  points 
out  the  remarkable  improvements  in  the  manufacture  of 
the  coarser  metals  during  the  seventeenth  and  eighteenth 
centuries,  but  he  adds  that  in  the  clothing  manufacture 
there  had  been  no  such  progress,  and  that  the  division 
of  labour  and  the  machinery  employed  were  practically 
the  same  in  his  day  as  a  hundred  years  before.  Since  his 
time,  however,  the  improvement  in  the  manufacture  of 
woollen  cloth  has  been  as  remarkable  as  in  any  industry. 

The  astonishing  increase  in  the  productive  power  of 
labour  and  capital  in  cotton-spinning  has  already  been 
i  Bk.  I.,  Ch.  XL,  p.  112,  McCulloch. 


174  PRINCIPLES  OF  POLITICAL  ECONOMY. 

alluded  to,  but  it  is  hardly  conceivable  and  much  less 
probable  that  during  the  next  hundred  years  the  return 
will  increase  in  a  corresponding  degree.  It  is  interesting 
to  observe  that  even  during  the  last  forty  years  the  price 
of  raw  cotton  has  fallen  more  than  the  price  of  cotton 
yarn  and  cotton  cloth.1 

In  conclusion,  it  must  be  observed  that  the  division  of 
material  wealth  into  "  raw  produce  "  and  "  manufactures," 
though  intelligible  and  useful  when  extreme  examples 
are  taken  (e.</.,  wheat  and  cloth),  is  in  many  cases  inappli- 
cable. Even  wheat,  before  it  is  consumed  in  the  shape  of 
bread,  is  subjected  directly  and  indirectly  to  a  number 
of  mechanical  processes,  but  we  do  not  naturally  look 
on  bread  as  a  typical  manufactured  article ;  and  the  same 
observation  applies  to  houses,  ships,  roads,  fences,  docks, 
and  many  other  important  commodities.  Logically,  every 
species  of  raw  produce  requires  some  labour  for  its  adapta- 
tion to  man's  use — the  standing  corn  must  be  cut  and 
carried,  and  the  coal  at  the  pit's  mouth  must  be  distributed ; 
similarly,  every  species  of  manufacture  requires  indirectly 
a  certain  amount  of  raw  produce  of  various  kinds  as  well 
as  its  own  particular  raw  material.  Accordingly,  in  all 
cases  we  have  to  compare  the  possible  economies  and  im- 
provements in  labour  and  capital  with  the  possible  limita- 
tion of  natural  resources  before  we  can  say  that  production 
will  follow  the  law  of  increasing  or  the  law  of  diminishing 
return.  Whether  a  nation  as  a  whole  has  reached  the 
point  at  which  any  increase  of  population  will  involve  a 
diminishing  return  to  its  general  productive  power,  can 
only  be  determined  by  a  difficult  inductive  inquiry.  Some 
of  the  general  principles  which  must  serve  as  guiding 
hypotheses  will  be  considered  in  the  next  chapter. 

1  See  the  "  Economist,"  Index  Numbers,  in  the  Commercial  Review, 
for  1891  — in  the  issue  of  20th  February,  1892.  If  the  average  prices  for 
1845-1850  be  taken  at  100  in  each  case,  then  on  1st  January,  1892,  the 
price  of  raw  cotton  was  73,  of  cotton  yarn  82,  and  of  cotton  cloth  84. 


CHAPTER   XI. 

THE  PRINCIPLE  OF   POPULATION. 

§  1.  The  Work  of  Malthus.  The  scope  and  limits  of  this 
work  do  not  in  general  admit  of  a  historical  account  of  the 
development  of  theories ;  and,  as  a  rule,  I  must  content 
myself  with  the  statement  of  principles  without  regard  to 
their  origin.  In  the  case  of  the  principle  of  population, 
however,  an  exception  may  be  made  on  various  grounds. 
There  is  no  part  of  the  subject  which  has  been  so  much 
misunderstood,  and  no  economist  of  the  first  rank  has  been 
so  utterly  misrepresented  as  Malthus.  The  Essay  on  the 
Principle  of  Population  in  its  final  form,  is  one  of  the 
best  examples  of  the  inductive  method,  and  it  is  of  special 
interest  at  the  present  time,  when  theories  of  equality  are 
again  in  the  ascendant.  The  essay  in  its  original  shape 
was  suggested,  as  the  author  himself  states,  by  a  paper 
by  Godwin ; l  and  its  primary  object  was  to  show  that  the 
speculations  on  the  perfectibility  of  man  and  society  which 
at  that  time  (A.D.  1798)  were  in  the  air  broke  down 
through  failing  to  take  account  of  the  natural  increase  of 
population.  In  this  first  form  the  essay  was  mainly  theo- 
retical and  was  certainly  imperfect,  but  in  the  course  of 
successive  editions  Malthus  introduced  a  vast  amount  of 
material  collected  from  the  past  and  present  state  of  society 
in  various  parts  of  the  world.  The  result  of  this  elaborate 
process  of  verification  was  not  only  to  make  at  least  one 

1  It  is  interesting  to  compare  with  this  statement  the  last  note  in  the 
appendix  to  the  last  edition,  1825,  p.  527  :  "  The  answer  of  Godwin,  both 
in  matter  and  manner,  is  such  as  not  to  require  a  reply." 

175 


176        .       PRINCIPLES  OF  POLITICAL   ECONOMY. 

alteration  of  fundamental  importance  in  the  original  the- 
ory, but  to  place  the  whole  argument  on  a  different  foot> 
ing.  The  critique  on  schemes  of  equality  was  retained 
with  an  apologetic  justification,  first,  because  "  when  para- 
doxes of  this  kind  are  advanced  by  ingenious  and  able 
men,  neglect  has  no  tendency  to  convince  them  of  their 
mistakes,"  l  and  secondly,  because  "  it  is  probable  that  if 
the  world  were  to  last  for  any  number  of  thousands  of 
years,  systems  of  equality  would  be  among  those  errors, 
which,  like  the  tunes  of  a  barrel-organ,  to  use  the  illustra- 
tion of  Dugald  Stewart,  will  never  cease  to  return  at 
certain  intervals."2  The  following  passage,  taken  from 
Malthus'  criticism  of  Condorcet,3  furnishes  an  illustration, 
which  at  the  present  day,  with  our  proposals  for  old-age 
pensions,  and  the  extension  of  the  use  of  state  credit, 
needs  no  comment.  "  By  the  application  of  calculations 
to  the  possibilities  of  life  and  the  interest  of  money,  he 
proposes  that  a  fund  should  be  established  which  should 
assure  to  the  old  an  assistance  produced  in  part  by  their 
own  former  savings,  and  in  part  by  the  savings  of  individ- 
uals who,  in  making  the  same  sacrifice,  die  before  they 
reap  the  benefit  of  it.  The  same  or  a  similar  fund  should 
be  given  to  women  and  children  who  lose  their  husbands 
and  fathers.  .  .  .  Going  still  further,  he  says,  that  by 
the  just  application  of  calculations  means  might  be  found 
of  more  completely  preserving  a  state  of  equality  by 
preventing  credit  being  the  exclusive  privilege  of  great 
fortunes,  and  yet  giving  it  a  basis  equally  solid,  and  by 
rendering  the  progress  of  industry  and  the  activity  of 
commerce  less  dependent  on  great  capitalists."  4  But  al- 
though the  critique  was  retained,  the  emphasis  was  read- 
justed, and,  as  Dr.  Bonar  points  out  even  on  the  title-page 
in  the  extended  description  of  the  essay,  the  lettering  of  the 

1  The  references  are  to  the  seventh  edition  (Reeves  and  Turner,  1872). 

2  p.  282.  »  p.  264. 

4  See  also  the  discussion  in  the  appendix  on  the  system  of  small  hold- 
ings, and  the  " one  or  two  acres  and  a  cow"  proposal. 


PRODUCTION.  177 

inquiry  into  the  future  becomes  smaller  and  fainter,  whilst 
that  of  the  view  of  the  past  and  present  becomes  larger 
and  blacker.1  If  Darwin  had  published  his  first  idea  of 
the  origin  of  species  without  the  labour  of  collecting 
voluminous  proofs,  his  work  —  that  is  to  say,  in  its  con- 
structive method  —  would  have  corresponded  closely  to 
the  first  edition  of  Malthus ;  as  he  chose  to  wait  some 
seventeen  years,  it  corresponds  to  the  last. 

The  comparison  between  Darwin  and  Malthus  both  in 
matter  and  method  is  very  instructive,  but  it  is  a  mistake 
to  suppose  that  the  principle  of  population  is  one  case  of 
the  wider  Darwinian  theory.  The  truth  is,  though  it  has,  I 
believe,  been  generally  overlooked,2  that  although  Malthus 
suggested  to  Darwin  the  leading  idea  of  his  theory,  as  a 
matter  of  fact,  he  himself  was  definitely  opposed  to  Dar- 
win's conclusion.  He  admits  that  there  may  be  variations 
within  certain  limits,  alike  in  man,  animals,  and  plants, 
but  the  limits,  in  his  view,  are  real  and  insurmountable  — 
they  may  be  undefined  but  they  cannot  be  indefinite. 
Speaking  of  men,  he  says :  "  Whether  intellect  could  be 
communicated,  may  be  a  matter  of  doubt;  but  size, 
strength,  beaut}r,  complexion,  and,  perhaps,  even  longevity, 
are  in  a  degree  transmissible.  The  error  does  not  lie,  in 
supposing  a  small  degree  of  improvement  possible,  but  in 
not  discriminating  between  a  small  improvement,  the  limit 
of  which  is  undefined,  and  an  improvement  really  unlim- 
ited." And  again,  more  generally:  "It  cannot  be  true, 
therefore,  that  among  animals,  some  of  the  offspring  will 
possess  the  desirable  qualities  of  the  parents  in  a  greater 
degree,  or  that  animals  are  indefinitely  perfectible."3  Simi- 
larly, Malthus  gave  no  countenance  to  the  opinion  that  in 
mankind  the  struggle  for  existence  would  lead  to  the  sur- 

1  Malthus  and  His  Work,  p.  86.     This  admirable  work  gives  by  far 
the  best  account  of  Malthus  with  which  I  am  acquainted.     In  the  present 
chapter  I  have  been  much  indebted  to  it. 

2  See  Dr.  Bonar's  work,  p.  46. 
'Ibid.,  p.  269. 


178  PRINCIPLES  OF  POLITICAL  ECONOMY. 

vival  of  the  fittest,  and  that  the  ultimate  product  would 
be  the  highest  civilisation.  On  the  contrary,  he  draws  a 
distinction  not  only  in  degree,  but  in  kind,  between  the 
intelligence  and  morality  of  man  and  of  other  animals, 
and  the  progress  of  man  he  ascribes  to  the  conquest  by  his 
superior  attributes  of  those  lower  animal  propensities.1 

The  resemblance  between  the  two  writers  is  to  be  found 
not  in  the  matter  of  their  conclusions,  but  in  the  method 
of  their  research.  Each  started  with  a  guiding  principle, 
but  neither,  to  adopt  Malthus'  description  of  his  own 
work,  entrenched  himself  in  an  impregnable  fortress  of 
abstraction  and  hypothesis ;  on  the  contrary,  both  wan- 
dered in  search  of  facts  over  the  large  field  of  experience. 
Malthus  discovered  and  enumerated  the  principal  causes 
that  affect  the  actual  growth  of  peoples ;  similarly  Darwin 
investigated  the  actual  growth  of  species.  It  is  a  curious 
and  suggestive  fact  that  Malthus,  who  took  a  priori  views 
of  animals  and  plants,  denied  the  theory  of  Darwin,  whilst 
Darwin,  who,  in  respect  to  man's  higher  nature,  was  equally 
a  priori  in  reality,  denied  the  theory  of  Malthus. 

Like  all  great  writers,  Malthus  was  influenced,  not  only 
by  the  speculative  thought,  but  by  the  social  conditions  of 
his  time.  The  work  was  composed  in  the  cumulative 
manner  described  during  the  period2  when  the  English 
Poor  Law  was  gradually  bringing  to  maturity  the  evils 
which  are  so  graphically  portrayed  in  the  celebrated 
Report  of  the  Commissioners  in  1834.  Without  entering 
into  the  general  discussion,  of  poor  relief,  which  will  be 
taken  up  at  a  later  stage,3  it  may  be  stated  that  the  gov- 
erning principle  during  this  period  was  that  the  people, 
who,  in  the  words  of  Pitt,  had  enriched  their  country  with 
a  number  of  children,  should  receive  relief  as  a  matter  of 
right  and  honour.  Even  Adam  Smith  had  declared  that 

1  Compare  Sir  A.  Mitchell's  Past  in  the  Present,  Part  II.,  §  2 :  "  How 
does  the  law  of  natural  selection  affect  men  ?  " 

2  First  edition  published  in  1798,  sixth  in  1826. 

8  See  infra,  Bk.  II.,  Ch.  XII.,  especially  with  reference  to  Pitt. 


PRODUCTION.  179 

the  best  sign  of  the  prosperity  of  a  country  was  a  rapid 
increase  of  population.  It  must  be  remembered  that  dur- 
ing the  period  in  question,  the  country  was  engaged  in  a 
great  war,  and  a  large  population  was  looked  upon  as  a 
political  necessity.  Accordingly,  when  Malthus  set  himself 
to  prove  that  the  Poor  Laws  had  done  much  more  harm 
than  good,  and  ought  to  be  gradually  abolished,  and 
when  he  boldly  asserted  that,  "  it  is  not  the  duty  of  a 
man,  simply  to  propagate  his  species,  but  to  propagate 
virtue  and  happiness,  and  that  if  he  had  not  a  tolerably 
fair  prospect  of  doing  this,  he  is  by  no  means  called  upon 
to  have  descendants,"  he  struck  straight  at  notions  uni- 
versally prevalent,  and  his  teaching  was  branded  with  op- 
probrious epithets.  Just  as  Darwin  shocked  traditional 
theology  regarding  the  origin,  so  Malthus  offended  it  in 
respect  of  the  continuance,  of  the  human  species.  Those 
who  think  that  the  principle  of  population  is  an  obvious 
truism  would  do  well  to  take  note  of  the  controversy 
which  its  enunciation  excited,  and  those  who  imagine  that 
Malthus  ever  wrote  anything  opposed  to  common  sense 
morality  should  do  his  memory  the  justice  of  reading  the 
essay  itself.  No  man  has  ever  suffered  so  much  from 
being  answered  by  those  who  have  never  seen  a  line  of  his 
works.1 

§  2.  The  Principle  of  Population.2  Malthus  commences 
his  essay  by  saying  that  it  would  be  beyond  the  power  of 
any  individual  to  enumerate  all  the  causes  that  have  influ- 
enced or  retarded  human  improvement,  and  that  the  prin- 
cipal object  of  his  work  is  to  examine  the  effects  of  one  great 
cause  intimately  united  with  the  very  nature  of  man,  namely, 
the  constant  tendency  in  all  animated  life  3  to  increase  be- 
yond the  nourishment  prepared  for  it.  In  this  passage  he 
disposes  by  anticipation  of  two  shallow  but  common  criti- 

1  Dr.  Bonar  gives  some  unique  examples,  especially  from  the  clergy. 
Bk.  III.,  Ch.  IV. 

2  The  argument  is  based  on  the  final  edition. 

3  The  tautology  is  that  of  Malthus. 


180  PRINCIPLES  OF  POLITICAL  ECONOMY. 

cisms.  In  the  first  place  the  tendency  to  increase  is  stated 
as  applicable  to  all  animated  nature  —  to  plants  as  well  as 
to  animals.  In  a  short  time,  as  he  points  out,  if  the  whole 
world  were  vacant,  it  would  be  covered  by  the  growth  of 
a  single  plant,  e.g.  fennel,  and  if  the  germs  of  existence  con- 
tained in  the  earth  could  freely  develop  themselves,  they 
would  fill  millions  of  worlds  in  the  course  of  a  few  ages.1 
It  may  then  be  objected  that  the  materials  of  food,  e.g. 
wheat  and  sheep,  tend  to  increase  even  faster  than  man- 
kind.2 But  the  answer  is  plain.  Mankind  cannot  live 
upon  tendencies  and  hypotheses ;  and  if  wheat  and 
sheep  were  left  to  themselves  the  supply  would  soon 
fail. 

Secondly,  Malthus  at  the  very  outset  guards  himself  from 
the  imputation  which  he  has  so  frequently  incurred  of  as- 
cribing all  the  ills  of  life  to  the  one  cause  that  he  has  inves- 
tigated. It  is  Mill,  the  disciple,  and  not  the  master  himself, 
who  is  guilty  of  exaggerating  the  evil  effects  of  the  prin- 
ciple. Malthus  went  no  further  than  to  say  that  all  society 
can  reasonably  require  of  its  members  is  that  they  should 
not  have  families  without  being  able  to  support  them,  and 
that  every  restraint  beyond  this  must  be  considered  a 
matter  of  choice  and  taste.3  Accordingly,  he  gave  his 
opinion  that  there  was  not  much  need  to  change  the 
notions  prevalent  on  the  subject  of  marriage  and  children 
in  the  higher  ranks  of  society.  Mill, 4  on  the  other  hand, 
writes  with  the  ascetic  fervour  of  a  monk:  "Little  im- 
provement can  be  expected  in  morality  until  the  producing 
large  families  is  regarded  with  the  same  feelings  as 
drunkenness  or  any  other  physical  excess.  But  while  the 
aristocracy  and  clergy  are  foremost  to  set  the  example  of 
this  kind  of  incontinence,  what  can  be  expected  from  the 
poor  ?  " 

1  Essay,  p.  2. 

2  Malthus  himself  pointed  out  that  wheat  could  increase  sixfold  and 
sheep  twofold  in  a  single  year. 

8  Essay,  p.  43.  *  Principles,  p.  226. 


PRODUCTION.  181 

Whether  it  would  be  a  good  thing  for  society  that  its 
most  wealthy  and  best  educated  members  should  set  the 
example  of  small  families  to  the  poor  and  uneducated  may 
be  a  matter  for  argument ;  prima  facie  it  may  be  urged  that 
the  contrary  custom  would  be  more  conducive  to  the  more 
equal  distribution  of  wealth  and  to  the  development  of 
higher  types  of  humanity,  and  it  is  not  very  probable  that 
the  example  would  be  followed,  even  if  it  were  set.  One 
thing,  however,  is  certain,  namely,  that  Malthus  himself 
did  not  adopt  this  view  of  moral  restraint  any  more  than 
he  adopted  the  view,  with  which  he  is  popularly  credited, 
of  vicious  indulgence.  "  That  an  increase  in  the  popula- 
tion," —  these  are  his  words  — "  when  it  follows  in  its 
natural  order,  is  both  a  great  positive  good  in  itself  and 
absolutely  necessary  to  a  further  increase  in  the  annual 
produce  of  the  land  and  labour  of  any  country,  I  should  be 
the  last  to  deny."  It  is  not,  in  his  opinion,  immoral  to 
have  a  large  family,  if  there  is  a  reasonable  prospect  of  pro- 
viding means  of  support ;  the  immorality  of  imprudence 
only  arises  when  marriage  is  entered  on  with  no  such 
prospect. 

The  principle  of  population  is,  however,  best  treated  as 
a  problem  not  of  domestic  but  of  political  economy.  We 
shall  make  little  progress  by  expanding  the  commonplace 
—  man  is  a  rational  animal  —  and  balancing  reason  against 
instinct ;  to  discover  what  laws  govern  the  growth  of  the 
members  of  a  state,  we  must  appeal,  as  Malthus  does,  to  the 
past  and  present  conditions  of  actual  —  not  hypothetical  — 
societies. 

The  theory,  as  summarised  by  Malthus  himself,  is  given 
in  three  propositions  and  a  qualification.1 

The  first  of  these  propositions,  namely,  that  population 
is  necessarily  limited  by  the  means  of  subsistence,  is  obvi- 
ously true.  It  is,  perhaps,  worth  noting  that  the  means 
of  subsistence  must,  in  general,  include  something  more 
than  food  and  drink  ;  as,  for  example,  protection  against 
1  SIT  the  general  summary,  Essay,  p.  261,  and  note. 


182  PRINCIPLES  OF  POLITICAL  ECONOMY. 

the  powers  and  pests  of  nature.1  In  any  case,  however,  it 
is  perfectly  clear  that  the  supply  of  food  actually  availa- 
ble, imposes  an  absolute  limit  to  any  advance  in  popula- 
tion; and  the  law  of  diminishing  return  to  land,  shows 
that  under  given  conditions  this  supply  can  only  be 
increased  with  increasing  difficulty.2  Thus  the  mathe- 
matical analogy  of  Mai  thus  is  justifiable  —  that  whilst 
population  may  increase  in  a  geometrical,3  food  can  only 
increase  in  an  arithmetical,  ratio.  Even  in  this  axiomatic 
position,  Malthus  is  not  content  with  an  a  priori  statement. 
He  compares  the  increase  of  population,  when  left  to  exert 
itself  "  with  perfect  freedom,"  with  the  rate  of  increase  in 
the  productions  of  the  earth  under  the  most  favourable 
circumstances  of  human  industry.  Perfect  freedom  of 
expansion  has,  of  course,  never  existed,  but  an  approxima- 
tion is  found  in  the  English  settlements  in  North  America. 
In  these  states,  where  the  means  of  subsistence  have  been 
more  ample,  the  manners  of  the  people  more  pure,  and  the 
check  to  early  marriages  fewer  than  in  any  of  the  modern 
states  of  Europe,  the  population  has  been  found  to  double 
itself  for  above  a  century  and  a  half,  in  less  than  twenty- 
five  years.4  In  some  parts,  the  population  has  doubled 
itself  in  fifteen  years,  and  even  less.  Accordingly,  if  the 
means  of  subsistence  are  forthcoming  and  people  follow 
their  natural  inclinations  as  regards  marriage  and  rearing 
children,  we  are  clearly  within  the  mark  in  saying  that 
population  can  easily  double  itself  in  twenty-five  years. 
But  the  facts  already  considered  show  that,  without  radi- 
cal improvements,  the  food  available  to  human  industry 


1  Fuel  especially  is  of  importance.    See  Roscher,  Bk.  V.,  §  239. 

2  See  the  last  chapter. 

8  The  terms  are  used,  not  strictly,  but  as  the  basis  of  a  simile. 

4  Essay,  p.  3.  During  the  last  hundred  years  the  population  of  the 
United  States  has  increased  about  sixteen-fold,  — that  is  at  about  the  same 
rate  of  increase.  In  a  later  note  Malthus  states  that  the  population  of 
the  States,  from  the  earliest  settlements  to  1800,  doubled  itself  in  less 
than  twenty  years. 


PRODUCTION.  183 

cannot,  after  a  certain  point  has  been  reached,  be  increased 
in  the  same  proportion  with  equal  rapidity. 

Improvements,  no  doubt,  have  been  made  in  the  past, 
and  probably  will  be  made  in  the  future,  especially  through 
the  development  of  the  means  of  communication  and  the 
consequent  possibility  of  drawing  upon  the  supplies  of 
unexhausted  regions.  We  may  go  further  and  say,  that 
unless  such  improvements  had  taken  place  in  the  past,  the 
actual  increase  of  population  in  old  countries  would  not, 
have  been  possible ;  the  birth-rate  might  have  increased, 
but  the  death-rate  would  have  counterbalanced  it.  The 
increase  of  food  must  in  reality  precede  the  increase  of 
population,  for  the  needs  of  the  present  cannot  be  met 
by  the  prospects  of  the  future.  What  the  first  proposition 
really  amounts  to,  then,  is  this :  that  in  any  society,  more 
children  cannot  be  reared  to  a  healthy  maturity  than  the 
means  of  subsistence  at  the  command  of  the  society  will 
permit.  Children  under  ten 1  years  (at  the  lowest  limit) 
must  depend  for  their  livelihood  on  the  exertions  of  their 
parents,  or  on  public  or  private  charity. 

The  consideration  that  the  increase  of  food  must  pre- 
cede the  increase  of  population,  naturally  leads  up  to  the 
second  proposition  in  the  Malthusian  theory :  "  Popula- 
tion invariably  increases  when  the  means  of  subsistence 
increase,  unless  prevented  by  powerful  and  obvious 
checks."  This  second  proposition  is  given  with  an  im- 
portant qualification.  By  an  increase  in  the  means  of 
subsistence  is  always  meant  such  an  increase  as  the  mass 
of  the  people  can  command.  An  increase  might  take 
place  which,  in  the  actual  state  of  any  particular  society, 
would  not  be  distributed  to  the  lower  classes,  and  conse- 
quently would  give  no  stimulus  to  population  ;  the  food 
might  be  given,  for  example,  to  domestic  animals,  or  to 
celibate  clergy.  In  this  statement  Malthus  follows  Adam 
Smith.  "Every  species  of  animals  naturally  multiplies 
in  proportion  to  the  means  of  their  subsistence,  and  noj 
1  This  is  the  figure  taken  by  Malthus. 


184  PRINCIPLES  OF  POLITICAL   ECONOMY. 

species  can  ever  multiply  beyond  it.  But  in  civilised 
societies  it  is  only  among  the  inferior  ranks  of  people  that 
the  scantiness  of  subsistence  can  set  limits  to  the  further 
multiplication  of  the  human  species."  J 

It  is  plain  that  this  second  proposition,  even  with  the 
qualification  appended,  requires  an  inductive  proof,  and 
it  is  in  furnishing  this  proof  that  Malthus  makes  a  real 
advance  upon  Adam  Smith.  It  is  this  second  proposition 
which  in  general  has  been  most  overlooked  or  misunder- 
stood. Malthus  does  not  state  that  if  population  increases 
there  will  necessarily  be  an  increasing  pressure  on  the 
means  of  subsistence,  but  that  if  the  means  of  subsistence 
increase,  population  will  increase,  unless  the  tendency  is 
counteracted  or  suppressed  by  certain  powerful  checks. 
The  actual  growth  of  population  is  the  resultant  of  these 
antagonistic  forces.  By  a  wide  survey  Malthus  shows  that 
some  of  these  checks  have  always  been  in  operation,  and 
he  arrives  at  the  conclusion  that  such  a  restraining  influ- 
ence must  always  be  present. 

The  question  then  arises,  What  are  these  checks  ?  and 
the  answer  is  given  in  the  third  proposition.2  "  These 
checks  and  the  checks  which  keep  the  population  down  to 
the  level  with  the  means  of  subsistence  are  moral  restraint, 
vice,  and  misery."  The  ultimate  check  he  explains3  is 
a  want  of  food,  but  this  ultimate  check  is  never  the  imme- 
diate check  except  in  cases  of  actual  famine.  Famine, 
however,  is  comparatively  rare,  and  consequently  the  im- 
mediate checks  must  be  sought  in  other  conditions.  Such 
are  all  those  customs  and  all  those  diseases  which  seem  to 
be  generated  by  a  scarcity  of  the  means  of  subsistence,  and 
all  those  causes  independent  of  this  scarcity,  whether  of 
a  moral  or  physical  nature,  which  tend  prematurely  to 
weaken  and  destroy  the  human  frame. 

These  checks  may  be  divided  into  two  great  classes, 
namely,  those  which  diminish  the  birth-rate,  and  those 

1  Wealth  of  Nations,  Bk.  I.,  Ch.  VIII. 

2  Essay,  p.  261.  8  Ch.  II.,  p.  6. 


PRODUCTION.  185 

which  increase  the  death-rate ;  the  former  are  styled  pre- 
ventive, the  latter  positive.  The  preventive  checks  are, 
speaking  broadly,  either  of  the  nature  of  moral  restraint 
or  of  vice.  The  phrase  "  moral  restraint "  1  is  used  in  a 
very  restricted  sense,  as  equivalent  merely  to  abstinence 
from  marriage  not  accompanied  by  irregular  gratifications. 
The  preventive  checks  that  come  under  the  head  of  vice 
are  found  to  exist  in  the  lowest  stages  of  barbarism  and 
in  the  highest  stages  of  civilisation. 

Of  the  positive  checks,  some  arise  unavoidably  from  the 
laws  of  nature,  as,  for  example,  from  the  inclemency  of  the 
seasons  or  the  exhaustion  of  natural  resources.  To  these 
the  name  of  "misery"  is  specially  applied.  Other  positive 
checks,  however,  are  partially  or  wholly  the  result  of  vice, 
such  as  wars,  overcrowding,  and  excesses.  For  the  illus- 
tration and  the  inductive  proof  of  the  operation  of  these 
various  checks,  the  reader  must  refer  to  the  essay  itself ; 2 
he  will  be  repaid  by  the  correction  of  many  natural  but 
erroneous  opinions.  The  permission  of  infanticide,3  for 
example,  is  shown  to  increase  in  general  the  population  of 
a  country  (as  in  China)  ;  for  by  removing  the  fear  of  too 
numerous  a  family  it  encourages  marriage,  but  when  chil- 
dren are  born  the  natural  instincts  for  preserving  them 
are  too  strong  except  in  extreme  necessity.  Slavery,4 
again,  is  shown  to  be  unfavourable  to  propagation,  and 
countries  in  which  the  masses  are  slaves  are  less  populous 
than  those  in  which  they  are  free.  The  laws  passed  in 
ancient  times  for  the  encouragement  of  population  are 
shown  to  have  been  not  the  cause  of  increase,  but  rather 
effects  of  deficiency  of  numbers.  Similarly5  it  is  stated, 
that  whilst  scarcity  and  extreme  poverty  may  or  may  not 
accompany  an  increasing  population  according  to  circum- 
stances, they  must  necessarily  accompany  a  permanently 
declining  population.  The  account  given  of  the  causes 
and  effects  of  great  migrations 6  is  an  excellent  example 

1  Essay,  p.  8,  note.  2  See  also  Roscher,  Bk.  V. 

8  Essay,  p.  37.  «  Essay,  p.  12L  5  p.  379.  6  pp.  45-47. 


186  PRINCIPLES  OF  POLITICAL  ECONOMY. 

of  the  essay.  Emigration  does  not  necessarily  diminish 
population. 

To  resume  the  main  argument:  the  sum  of  all  these 
preventive  and  positive  checks  taken  together  forms  the 
immediate  check  to  population ;  in  every  country  some  of 
them,  with  more  or  less  force,  are  in  constant  operation, 
and  yet  there  are  few  countries  in  which  there  is  not  a 
constant  effort  in  the  population  (or  rather  part  of  it)  to 
increase  beyond  the  means  of  subsistence.  It  is  this  effort 
which  tends  to  subject  the  lower  classes  to  distress  and 
to  prevent  any  permanent  amelioration  in  their  condition. 
But  the  distress  arises  because  population  is  repressed,  not 
by  moral  restraint,  but  by  misery  and  vice. 

A  point  in  the  argument  which  has  hardly  received 
sufficient  attention  is  the  economy  in  the  application  of 
this  system  of  checks.  With  Malthus  the  position  is 
fundamental  —  and  he  takes  great  pains  to  establish  it  — 
that  the  preventive  and  the  positive  checks  vary  inversely 
to  each  other.  In  countries  that  are  naturally  unhealthy 
or  subject  to  a  great  mortality  from  any  cause,  the  preven- 
tive checks  will  prevail  very  little.  On  the  other  hand, 
in  countries  where  the  preventive  checks  are  in  considera- 
ble force  the  mortality  is  very  small.  This  conclusion  is 
suggested  by  the  expansive  power  of  population,  but  it  is 
proved  by  appeal  to  experience.1  It  naturally  leads  to  the 
principal  practical  result  of  Malthus'  investigation :  if  only 
the  mass  of  the  people  would  exercise  moral  restraint,  the 
other  checks  that  arise  from  misery  and  vice  would  tend 
to  disappear. 

Nothing  is  more  unfounded  and  unjust  than  the  assertion 
that  Malthus  looked  upon  vice  and  misery  as  necessarily  con- 
nected with  the  growth  of  population ;  they  are  so  only  in 
the  absence  of  the  other  alternative  always  offered ;  but  it 
is  true  that  anything  which  weakens  moral  restraint  tends 
to  bring  into  play  these  evil  tendencies.  If  the  means  of 

1  Malthus  refers  also  to  the  recuperative  powers  shown  after  wars  and 
plagues. 


PRODUCTION.  187 

subsistence  increase,  the  principle  of  population  will  show 
its  force  unless  it  is  counteracted ;  it  is  for  man,  as  a 
rational  creature,  to  choose  the  counteracting  agency ;  if, 
like  animals,  human  beings,  regardless  of  consequences, 
give  full  play  to  the  procreative  force,  like  animals,  their 
numbers  will  be  kept  down  by  the  misery  of  positive  evils ; 
if  by  a  perversion  of  reason  they  fall  into  vice,  the  ultimate 
effect  is  again  misery ;  it  is  only  in  moral  restraint  that  the 
path  of  safety  lies.  Malthus  wished  not  for  an  absolute  t 
diminution  of  numbers,  but  for  a  relative  improvement  in/ 
quality.  He  states  most  explicitly l  that  the  precise  reason 
why  he  maintains  that  more  children  ought  not  to  be  born 
than  the  country  can  support  is  that  the  greatest  possible 
number  of  those  that  are  born  may  be  supported.  He 
looks  upon  infant  mortality  as  a  private  and  public  disas- 
ter; he  regards  every  diminution  of  disease,  every  improve- 
ment in  the  condition  of  the  people  as  a  national  benefit; 
and  that  a  rich  class  is  necessary  to  give  employment  to  the 
poor,  he  repudiates  with  indignation.2 

Recently  a  reaction  has  set  in  against  the  exaggerated 
vu'\vs  of  Mill  on  the  subject  of  population,  and  the  im- 
portance of  the  real  teaching  of  Malthus  is  in  danger  of 
being  neglected.  It  is  often  assumed  that  because  the  area 
of  our  food  supplies  has  been  largely  extended,  the  princi- 
ple of  population  is  of  no  immediate  interest ;  that  with 
the  rapid  increase  of  wealth  and  the  fall  in  the  price  of 
wheat,  population  may  expand  indefinitely ;  and  it  is  some- 
times stated,  with  reference  to  France  in  particular,  that 
the  evil  to  be  feared  in  the  near  future  is  rather  depopula- 
tion 3  than  over-population ;  and  in  the  rural  districts  of 
the  United  Kingdom  the  diminution  in  numbers  is  re- 
garded as  a  matter  of  public  concern. 

1  p.  472.  See  also  p.  488,  in  which  he  speaks  of  the  very  strange  sup- 
position that  the  ultimate  object  of  his  work  is  to  check  population,  "as 
if  anything  could  be  more  desirable  than  the  most  rapid  increase  of  pop- 
ulation, unaccompanied  by  vice  and  misery." 

a  p.  473.  8  oliganthropeia. 


188  PRINCIPLES   OF  POLITICAL  ECONOMY. 

Reflections  of  this  kind,  however,  are  beside  the  mark. 
It  is  futile  to  divide  the  aggregate  wealth  by  the  number 
of  people,  and  still  more  futile  to  take  as  dividend  the 
aggregate  amount  of  wealth  possible  under  some  ideal 
scheme.  What  we  have  to  consider  is  not  possible  sys- 
tems of  equality,  but  actual  systems  of  inequality.  It  is 
true  that  the  principle  of  population  may  be  directed  as 
an  argument  against  the  former,  but  it  is  equally  true  that 
its  power  as  a  living  force  is  present  in  the  latter.  In  the 
United  Kingdom  there  are  large  numbers  of  men  and 
women  who  do  not,  and  cannot,  under  present  conditions, 
earn  enough  to  support  themselves  in  a  state  of  tolerable 
comfort ;  still  less  can  they  bring  up  children  in  a  proper 
manner  —  morally  or  physically.  Yet  these  people  marry 
and  have  children,  and  the  numbers  of  this  class  are  kept 
down  by  the  positive  checks  of  vice  and  misery.  To  say 
that  the  principle  of  population  is  of  no  importance  be- 
cause on  the  hypothesis  that  if  wealth  were  equally  divided 
there  would  be  enough  for  all,  is  to  deal  with  pauperism 
as  if  it  were  only  a  hypothesis.  Again,  if  we  ascend  a 
little  higher  in  the  scale,  can  any  one  maintain  that  the 
very  early  marriages  of  factory  hands,  who  at  the  time 
may  be  earning  fair  wages,  are  likely  to  promote  their  own 
happiness  or  that  of  their  children  ?  Surely  every  one  is 
agreed  that  if  only  they  would  save  for  a  few  years, 
directly  and  indirectly  it  would  be  of  the  greatest  benefit. 
But  this  is  to  admit  what  Malthus  contends  for  most 
strongly ;  for  he  insists  not  merely  that  moral  restraint  of 
this  kind  would  check  the  evil  of  relative  over-population, 
but  that  the  actual  waiting  would  tend  to  purify  and  ennoble 
the  affections,  and  would  also  give  greater  freedom  to  that 
master-spring  of  industry,  that  great  vis  medicatrix  naturoe, 
the  desire  of  bettering  our  condition  and  the  fear  of  mak- 
ing it  worse. 

A  modern  industrial  nation  such  as  England  is  in  reality 
an  amalgam  of  nations,  and  the  lowest  tribes  in  our  great 
cities  are  economically  nearly  on  a  level  with  the  savages 


PRODUCTION.  189 

of  Terra  del  Fuego,1  who,  by  the  general  consent  of  voyag- 
ers,  have  been  placed  at  the  bottom  of  the  scale  of  human 
beings.  Above  the  lowest  stratum  are  tribes  that  repre- 
sent every  degree  of  civilisation  and  culture.  It  is  plainly 
absurd  to  take  as  an  average  sample  of  a  composite  nation, 
the  highest  class  in  intelligence  and  morality.  So  long  as 
the  lower  stages  exist,  we  must  suppose  that  the  principle 
of  population  will  be  restrained  in  the  present  as  in  the 
past.  Accordingly,  if  the  conclusions  of  Malthus  were 
ever  true,  they  are  still  true ;  if  ever  applicable,  they  are 
still  applicable. 

It  may  be  thought  that  I  am  emphasising  a  truism,  but 
the  following  sentence,  from  the  most  popular  authority  of 
the  day  upon  the  subject  of  pauperism,  a  writer  who 
claims  to  be  guided  only  by  facts,  shows  that  Malthus 
requires  either  refutation  or  confirmation :  "  I  have  not 
sufficient  evidence  to  show  whether,  as  a  rule,  early  mar- 
riages and  large  families  hang  together,  but  .there  are  in- 
stances of  it  in  the  stories  that  have  been  told.  On  the 
whole,  neither  of  these  causes  seems  to  have  as  much 
effect  on  pauperism  and  poverty  as  is  sometimes  sup- 
posed." 2 

According  to  the  table 3  given  by  the  same  writer,  we 
find  that  of  1,317,104  paupers,  315,457  are  children  under 
sixteen ;  and  he  further  gives  the  opinion  that  the  percent- 
age of  little  children  would  be  greater  than  of  those  over 
thirteen.  It  is  clear  that  as  regards  these  juvenile  pau- 
pers, there  must  have  been  considerable  imprudence  on  the 
part  of  the  parents,  and  it  must  be  remembered  that  there 
would  be  a  much  larger  number  just  above  this  class. 
References  to  house  accommodation,  rates  of  mortality, 
and  general  sanitary  conditions,  show  that  at  the  present 
time  in  England,  numbers  of  children  are  brought  into  the 
world  with  no  prospect  of  escaping  from  indigence  and  all 

1  Malthus1  Essay,  Ch.  III.,  p.  13. 

2  Pauperism  and  the  Endowment  of  Old  Age,  by  Charles  Booth,  p.  144. 

3  Ibid.,  p.  164. 


190  PRINCIPLES  OF  POLITICAL  ECONOMY. 

its  consequences.1  The  vices  engendered  by  poverty  — 
drunkenness,  crime,  and  sexual  immorality  —  may  in  turn 
be  partly  traced  to  imprudence  as  the  root  cause. 

In  the  table  referred  to  above,  I  find  that  the  number 
of  paupers  above  65  is  given  at  343,962.  To  provide 
these  persons  with  a  pension  of  five  shillings  per  week 
without  encouraging  improvidence,  it  is  proposed  to  give 
every  person  over  65  the  same  pension.  It  would  be 
difficult  to  imagine  a  more  curious  or  more  illusory  mode 
of  giving  relief  and  avoiding  the  consequences.  People 
who  do  not  need  it  are  to  receive  a  pension  so  that  those 
who  do  need  it  may  appear  to  be  on  the  same  footing. 
Independence  of  character  is  supposed  to  be  protected  by 
making  the  old-age  pension  a  matter  of  right,  not  of 
charity.  The  reader  of  Malthus,  however,  would  argue 
that  so  far  as  the  duty  of  supporting  the  parents  is  taken 
from  the  children  and  devolved  on  the  state,  so  far  directly 
and  indirectly  is  moral  restraint  likely  to  be  lessened ;  and 
so  far  a  positive  check  will  be  substituted  for  a  preventive 
one  of  the  best  kind.  To  relieve  those  who  are  too  old 
for  self-support  —  the  poor  in  very  deed  —  is  a  moral 
obligation,  but  an  obligation  that  falls  in  the  first  place 
on  the  children.  If  the  state  must  interfere  on  the 
grounds  of  humanity,  it  should  take  care  not  to  weaken 
this  prior  responsibility.  The  subject  will  be  further 
discussed  in  connection  with  the  Poor  Laws.2 
—  §  3.  The  Standard  of  Comfort.  "  In  most  countries,  among 
the  lower  classes  of  people,"  says  Malthus,  "  there  appears 
to  be  something  like  a  standard  of  wretchedness,  a  point 
below  which  they  will  not  continue  to  marry  and  propa- 
gate their  species.  The  standard  is  different  in  different 

1  See  Mr.  Booth's  Labour  and  Life  of  the  People,  Vol.  II.,  Part  IV., 
"London  Children,"   e.g.,  p.  493:   "These  are  the  children's  homes; 
the  parents  are  compelled  by  poverty,  or  by  inclination  are  content,  to 
dwell  in  them.     Their  children,  born  and  brought  up  under  such  condi- 
tions, take  the  colour  of  their  surroundings,  and,  following  nature's  law, 
grow  up  to  repeat  the  parental  type." 

2  See  Bk.  II.,  Ch.  XII. 


PRODUCTION.  191 

countries  and  is  formed  by  various  concurring  circum- 
stances of  soil,  climate,  government,  degree  of  knowledge, 
civilisation,  etc.  The  principal  circumstances  which  con- 
tribute to  raise  it  are  liberty,  security  of  property,  the 
diffusion  of  knowledge,  and  a  taste  for  the  conveniences 
and  comforts  of  life.  Those  which  contribute  principally 
to  lower  it  are  despotism  and  ignorance.  In  an  attempt 
to  better  the  condition  of  the  labouring  classes  of  society 
our  object  should  be  to  raise  the  standard  as  high  as 
possible  by  cultivating  a  spirit  of  independence,  a  decent 
pride,  and  a  taste  for  cleanliness  and  comfort.  .  .  .  The 
fairest  chance  of  accomplishing  this  end  would  probably 
be  by  the  establishment  of  a  system  of  parochial  education 
upon  a  plan  similar  to  that  proposed  by  Adam  Smith."  l 
It  is,  perhaps,  a  hopeful  sign  of  progress  that  English 
economists  have  substituted  for  the  ominous  phrase 
"  standard  of  wretchedness  "  the  more  grateful  expression 
"standard  of  comfort";  it  is  certainly  of  good  augury  that 
England  has,  after  a  hundred  years,  followed  one  more 
of  the  counsels  of  Adam  Smith.  Education  is  now  both 
compulsory  and  free.  All  that  remains  to  be  done  is  that 
it  should  also  be  made  real.  "  I  long,"  says  a  London 
teacher,2  "  to  have  simple  practical  lessons  with  the  children 
on  things  belonging  to  home  and  a  woman's  work,  but 
there  is  no  time  for  it.  We  cannot  stretch  the  Code." 
The  rigidity  of  codes3  has  in  times  past  been  the  most 
effective  check  to  progress  of  all  kinds.  It  is  curious  to 
find  the  evil  influence  weighing  down  the  lowest  classes 
in  a  modern  state  and  so  far  arresting  their  elevation. 
Instruction  in  the  elements  of  the  art  of  living  decently 
is  neglected,  to  make  room  for  teaching  the  little  dwellers 
in  the  slums  English  grammar,  parsing,  and  analysis. 
Correct  spelling  is  another  thankless  task.  Phonetic 
spelling  is  advocated  on  high  authority  on  its  own  merits, 

1  Essay,  Bk.  IV.,  Ch.  IX.,  pp.  437-441. 
8  Booth's  Life  and  Labour,  Vol.  II.,  p.  502. 
8  Cf.  Maine's  Ancient  Law. 


192  PRINCIPLES   OF   POLITICAL   ECONOMY. 

apart  from  the  economy  of  time  and  labour.  Arithmetic 
is  no  doubt  useful,  but  if  the  decimal  system  were 
adopted,  half  the  labour  of  this  department  would  be  saved. 
By  leaving  out  what  is  utterly  useless  and  by  adopting 
better  methods  of  instruction  in  the  necessary  foundations 
(the  three  R's),  time  would  easily  be  found  for  teaching 
the  elements  of  economics  (domestic  and  industrial  —  the 
word  "political"  is  liable  to  be  misunderstood)  and  of 
common-sense  morality.  As  matters  stand,  the  knowledge 
of  economics  is  left  to  chance,  and  of  morality  to  the 
church,  and  neither,  in  the  case  of  the  poor,  has  proved 
a  very  efficient  instructor.  "  We  have  lavished  enormous 
sums  on  the  poor,"  says  Malthus1  in  treating  of  this  topic, 
"  which  we  have  every  reason  to  think  have  constantly 
tended  to  aggravate  their  misery.  But  in  their  education 
and  in  the  inculcation  of  those  important  political  truths 
that  most  nearly  concern  them,  which  are  perhaps  the 
only  means  in  our  power  of  really  raising  their  condition 
and  of  making  them  happier  men  and  more  peaceable 
subjects,  we  have  been  miserably  deficient."  In  this 
sentence  the  only  change  required  is  to  substitute  for  the 
term  "political"  some  less  misleading  word,  if,  with  the 
equal  abuse  of  social  and  moral,  such  a  term  can  be  found. 

The  first  requisite  to  raise  the  standard  of  comfort  is  to 
diffuse  the  knowledge  of  a  higher  standard;  it  is  not 
enough  to  preach  or  teach  dogmatic  morality;  we  must 
also  show  in  a  way  that  can  be  appreciated  —  with  con- 
crete illustrations  —  that  the  conditions  of  life  may  be 
improved  and  happiness  increased.  The  state  and  the 
municipality  may  do  something,  but  no  amount  of  super- 
vision, control,  and  assistance  can  be  a  sufficient  substitute 
for  self-reliance  and  the  love  of  independence.  Our  sense 
of  freedom  will  not  allow  us  to  interfere  directly  with  the 
worst  abuses  of  home  life  ;  the  only  alternative  is  persua- 
sion, and  to  this  education  is  a  necessary  preliminary. 

Education  that  is  a  reality  will  tend  to  raise  the  con- 
1  Essay,  p.  438. 


PRODUCTION.  193 

dition  of  the  masses,  so  far  as  affected  by  the  principle  of 
population,  in  two  ways.  It  will  raise  the  standard  of 
comfort  and  it  will  quicken  the  sense  of  responsibility. 
Labouring  men  will  see  that  they  cannot  afford,  any  more 
than  the  members  of  the  professional  classes,  the  luxury  of 
early  marriages  and  large  families ;  if  they  wish  to  live  in 
decency  and  comfort,  they  must  begin  by  making  some 
sort  of  provision  against  emergencies.  In  return,  if  they 
train  up  their  children  morally,  intellectually,  and  physi- 
cally in  a  healthy  manner,  they  will  provide  themselves 
with  the  best  possible  insurance  against  old  age.  The 
causes  of  poverty  are  no  doubt  many  and  various,  and  the 
remedies  are  equally  numerous  and  diverse ;  but  one  of  the 
most  certain  and  prevailing  causes  is  the  production  of 
children  without  adequate  means  of  support ;  the  best  and 
surest  remedy  for  this  evil  is  to  make  people  regard  home 
and  family  life  as  an  object  that  requires  and  deserves 
effort  and  waiting  for  its  achievement.  This  is  the  essence 
of  the  teaching  of  Malthus,  and  there  is  no  point  in  which 
political  economy  more  closely  harmonises  with  common- 
sense  morality.  "  A  strong  conviction  in  a  young  man  of 
the  great  desirability  of  marriage,  with  a  strong  conviction 
at  the  same  time  that  the  power  of  supporting  a  family  was 
the  only  condition  which  would  enable  him  really  to  enjoy 
its  blessings,  would  be  the  most  effectual  motive  imaginable 
to  industry  and  sobriety  before  marriage,  and  would  power- 
fully urge  him  to  save  that  superfluity  of  income  which 
single  labourers  necessarily  possess  for  the  accomplishment 
of  a  natural  and  desirable  object,  instead  of  dissipating  it,  as 
is  now  usually  done,  in  idleness  and  vice." l 

For  my  own  part,  I  cannot  see  how  such  doctrine  is  op- 
posed to  religion,  morality,  or  even  sentiment,  though  the 
charge  is  still  pressed  in  each  particular,2  whilst  in  vigour 

1  Essay,  p.  437. 

2  Take,  for  example,  the  recent  work  on  Political  Economy,  of  C.  S. 
Devas  (one  of   the  Manuals  of  Catholic  philosophy),   in  most  respects 
a  fair  text-book  on  the  subject.     The  teaching  of  Malthus  is  severely 


194  PRINCIPLES  OF  POLITICAL  ECONOMY. 

and  dignity  it  seems  altogether  superior  to  the  proposal  to 
bribe  young  men  with  state  bounties  to  save  for  their  old 
age. 

To  return  to  the  more  strictly  economic  aspects  of  the 
question :  there  can  be  no  doubt  from  experience  that  there 
is  a  tendency,  in  the  working  classes  especially,  to  increase 
in  numbers  up  to  the  point  at  which  their  standard  of  com- 
fort is  imperilled.  Accordingly,  an  increase  in  the  means 
of  subsistence  (in  the  widest  sense)  is  usually  followed  by 
an  increase  in  numbers.  In  some  cases,  however,  an  im- 
provement in  real  wages  tends  to  raise  this  standard ;  but 
it  is  not  probable  that  the  effect  will  be  permanent  unless 
supported  by  improved  education ;  something  more  is 
needed  than  familiarity  with  a  plentiful  supply  of  neces- 
saries. The  further  treatment  of  this  subject  must  be  de- 
ferred to  the  chapter  on  wages. 

§  4.  The  Pressure  of  Population  on  the  Means  of  Subsist- 
ence. It  will  be  observed  that  in  the  foregoing  treatment 
of  the  theory  of  Malthus  the  increase  of  food  has  been 
regarded  as  a  condition  precedent  to  the  growth  of  popu- 
lation.1 Ricardo  and  other  English  economists,  however, 
have  assumed  that  population  first  increases,  that  in  conse- 
quence there  is  a  constant  pressure  on  the  means  of  subsist- 
ence, and  that  additional  supplies  are  only  to  be  obtained  at 
an  increasing  cost.  If  this  position  were  generally  true  it 
would  imply  that  the  positive  checks  of  Malthus  are  always 
in  operation  in  the  simple  and  obvious  form  of  insufficient 
food  and  its  consequences ;  for  pressure  can  only  show  itself 
by  deficiency  marked  practically  by  a  rise  in  price. 

The  opposite  view  has  been  forcibly  stated  by  Thorold 
Rogers.2  "  There  is  not  a  shadow  of  evidence  in  support 
of  the  statement  that  inferior  lands  have  been  occupied 
and  cultivated  as  population  increases.  The  increase  of 

condemned,  and  yet  the  writer  himself  lays  the  greatest  stress  on  fostering 
family  life,  —  as  if  he  were  giving  a  substitute  for  this  teaching,  whilst  he 
is  only  endorsing  it. 

1  Cf.  Rogers'  Political  Economy,  p.  73. 

2  Political  Economy,  p.  153. 


PRODUCTION.  195 

population  has  not  preceded  but  followed  this  occupation 
and  cultivation.  It  is  not  the  pressure  of  population  on 
the  means  of  subsistence  which  has  led  men  to  cultivate 
inferior  soils,  but  the  fact  that  these  soils  being  cultivated 
in  another  way,  or  taken  into  cultivation,  an  increased  pop- 
ulation became  possible.  How  could  an  increased  popula- 
tion have  stimulated  greater  labour  in  agriculture,  when 
agriculture  must  have  supplied  the  means  on  which  that 
increased  population  could  have  existed?  To  make 
increased  population  the  cause  of  improved  agriculture  is 
to  commit  the  absurd  blunder  of  confounding  cause  and 
effect."  This  statement,  however,  appears  to  err  on  the 
other  extreme.  Even  at  the  present  time,  in  Scotland  and 
Ireland  (not  to  go  so  far  as  India  and  China)  we  have 
congested  areas  with  the  worst  forms  of  agrarian  pauper- 
ism. In  earlier  times  we  find  great  migrations  of  tribes 
caused  by  the  overflow  of  population.  We  must  take  into 
account  also  the  growth  of  towns  and  cities  with  the  con- 
sequent stimulus  to  agriculture.  It  is  quite  possible  that, 
just  as  during  the  present  century  meat  has  risen  greatly 
in  price  and  made  more  expensive  methods  of  production 
possible,  so  the  price  of  food  supplies  and  other  necessaries 
may  rise  during  the  next  hundred  years  under  the  in- 
fluence of  an  increasing  population.  But  whilst  the  theo- 
retical possibility  is  admitted  the  actual  probability  may 
be  denied.  As  Malthus1  pointed  out,  there  have  often 
been  oscillations  in  the  advance  of  population  and  corre- 
sponding changes  in  the  standard  of  comfort ;  but  a  broad 
survey  of  the  history  of  progressive  nations  gives  no  sup- 
port to  the  theory  that  in  conjunction  with  these  oscilla- 
tions there  has  been  a  general  downward  tendency  in  the 
condition  of  the  mass  of  the  people  or  greater  difficulty  in 
obtaining  food  supplies.  If  we  consider  not  only  the  low- 
est forms  of  unskilled  labour,  but  take  a  general  average 
of  the  community,  there  can  be  no  doubt  that  on  the  whole 
the  necessaries  of  life  are  more  abundant  and  more  certain 
now  than  in  earlier  stages  of  society. 
1  Essay,  pp.  9-11. 


196  PRINCIPLES  OF  POLITICAL  ECONOMY. 

In  conclusion,  attention  may  be  directed  to  the  impor- 
tance of  a  nation's  not  relying  for  its  main  support  on  the 
cheapest  forms  of  food.  If  the  bulk  of  the  people  are 
accustomed  to  wheat  and  fresh  meat,  in  times  of  scarcity 
they  may  draw  upon  inferior  and  cheaper  forms  of  food, 
such  as  potatoes  and  rice.  But  if  they  are  accustomed 
already  to  the  cheapest  food,  and  if  their  standard  of  com- 
fort so  far  is  based  upon  it,  there  is  no  reserve  against  a 
failure  of  supply.  The  potato  famine  in  Ireland  (A.D. 
1846)  is  the  classical  example  of  the  truth  of  the  theory, 
and  it  is  worth  noting  that  it  was  anticipated  by  Malthus.1 
The  celebrated  traveller  and  agriculturalist,  Arthur  Young, 
published,  in  1800,  a  pamphlet  on  Scarcity  and  its  Reme- 
dies, in  which  the  following  passage  occurs :  "  If  each 
country  labourer  with  three  children  and  upwards,  has  his 
ample  potato  ground  and  a  cow,  the  price  of  wheat  would 
be  of  little  more  consequence  to  him  than  it  is  to  their 
brethren  in  Ireland.  Every  one  admits  the  system  to  be 
good,  but  the  question  is  how  to  enforce  it."  The  com- 
ment of  Malthus  is  characteristic  and  pointed.  "  I  was  by 
no  means  aware  that  the  excellence  of  the  system  had  been 
so  generally  admitted.  For  myself,  I  strongly  protest 
against  being  included  in  the  general  term  of  every  one,  as 
I  should  consider  the  adoption  of  this  system  as  the  most 
cruel  and  fatal  blow  to  the  happiness  of  the  lower  classes 
in  this  country  that  they  had  ever  received."  2 

1  Essay,  p.  451. 

2  Roscher  (Political  Economy,  Bk.  V.)  gives  an  excellent  account  of 
the  principle  of  population,  with  many  facts  which  supplement  those  col- 
lected by  Malthus.     The  general  reports  of  the  census  abound  with  infor- 
mation, but  the  statistics  are  too  complex  for  quotation  in  the  present 
work.    The  history  of  the  growth  of  population  over  a  long  period  is  the 
best  comment  upon  the  theory.    See,  for  example,  the  essay,  by  Mr.  Price 
Williams,  on  the  increase  of  population  in  England  and  Wales  since  1700. 
—  Journal  of  the  Statistical  Society,  September,  1880.    The  work  of  Sir 
W.  Hunter,  on  India,  shows  the  great  difficulties  in  the  way  of  avoiding 
over-population  with  the  abolition,  by  a  civilised  government,  of  the  posi- 
tive checks  hitherto  prevailing. 


CHAPTER   XII. 

THE    GROWTH    OF    MATERIAL   CAPITAL. 

§  1.  Meaning  of  the  Growth  of  (Capital  Material').  As 
already  explained,1  the  popular  idea  that  large  masses  of 
capital  are  handed  down  from  age  to  age  without  any 
trouble  except  that  of  investment  is  altogether  erroneous. 
If  it  is  true  that  all  capital  is  saved,  it  is  equally  true 
that  all  capital  is  consumed,  and  in  most  cases  it  is 
consumed  rapidly.  Accordingly,  but  for  popular  usage, 
it  would  be  preferable  to  speak  of  the  growth  of  capital 
rather  than  of  its  accumulation  in  considering  the  laws 
of  its  increase.  In  fact,  as  Mill  observes,  the  increase 
of  capital  is  analogous  in  many  respects  to  the  increase  of 
population. 

The  root  idea  of  capital  is  that  its  characteristic  utility 
is  the  satisfaction  of  future  needs.  The  simplest  form  of 
the  creation  of  capital  is  putting  aside,  directly  for  future 
consumption,  a  portion  of  a  stock  of  consumable  commod- 
ities. Even  in  the  highest  civilisation,  this  direct  saving 
is  practised  whenever  people  lay  in  stores  for  future 
use. 

To  a  great  extent,  however,  the  creation  of  capital  de- 
pends upon  the  direction  given  to  industry.  Any  one  who 
has  command  over  a  certain  amount  of  money  has  directly 
or  indirectly  the  control  of  a  corresponding  part  of  the 
productive  forces  of  the  society  in  which  he  lives.  He  may 
choose  to  use  this  power  for  his  immediate  gratification, 
as,  for  example,  by  supporting  a  number  of  personal  attend- 

1  Ch.  VI.,  §  7. 
197 


198  PRINCIPLES   OF   POLITICAL   ECONOMY. 

ants  in  the  style  of  a  feudal  baron.  On  the  other  hand, 
he  may  give  employment  to  labour  in  the  construction  of 
various  kinds  of  auxiliary  or  sustaining  capital.  At  the 
end  of  a  given  period,  the  labour,  having  been  itself  re- 
newed, is  still  there,  and  unless  a  miscalculation  has  been 
made  the  capitalist  has  a  larger  command  than  before  over 
industry,  for  his  capital  is  not  simply  replaced,  but  replaced 
with  an  increment,  which,  expressed  in  terms  of  money,  is 
called  profits.  This  conversion  also,  in  a  sense,  involves 
the  sacrifice  of  a  present  for  the  sake  of  a  future  good, 
though  in  many  cases  the  pleasure  of  accumulation  is 
much  stronger  than  that  of  careless  extravagance. 

Karl  Marx  and  other  socialists  are  no  doubt  justified,  as 
against  optimistic  writers  like  Bastiat,  in  ridiculing  the 
"  abstinence "  of  a  great  capitalist,  whose  personal  con- 
sumption is  only  limited  by  his  tastes  and  inclinations,  and 
whose  ruling  idea  is  increase  of  wealth  for  the  sake  of  the 
general  power  which  it  confers.  So  much  may  be  ad- 
mitted ;  but  take  away  from  such  a  capitalist  the  disposal 
in  the  future  —  if  only  by  his  last  will  and  testament  —  of 
the  results  of  his  abstinence,  and  his  saving  would  soon  be 
replaced  by  expenditure  of  some  kind ;  he  might  gratify 
his  notions  of  magnificence  by  display,  or,  if  actuated  by 
philanthropy,  direct  with  his  own  hand  the  distribution  of 
his  wealth  between  competing  charities.  In  any  case, 
however,  there  must  be  some  attraction  of  some  kind 
strong  enough  to  make  the  reward  of  the  future  overbal- 
ance the  gratification  of  the  moment,  or  saving,  in  the 
broadest  sense  of  the  term,  will  dwindle  to  the  vanishing 
point. 

Turning  now  from  the  individual  to  the  society,  econo- 
mists haye  naturally  divided  the  causes  which  affect  the 
accumulation  or  growth  of  capital  into  two  groups l ; 
those  mainly  which  affect  the  amount  of  the  fund  from 
which  savings  may  be  made,  and  those  which  operate  on 

1  "  For  the  development  of  industry,  the  union  of  power  and  inill  is 
required."  —  BENTHAM,  L,  p.  310. 


PRODUCTION.  199 

the  minds  of  the  owners  of  wealth  and  lead  them  to  save 
rather  than  to  consume.1 

§  2.  The  Power  to  save.  The  maximum  amount  which 
can  be  added  in  a  given  period  (say  a  year)  to  the  capital 
already  existing  is  the  whole  of  the  real  net  produce  of  the 
society.  The  capital  and  labour  already  existing  must  be 
continued  in  the  same  state  of  efficiency ;  labour  must  ob- 
tain sufficient  necessaries,  raw  material  must  be  replaced, 
and  buildings  and  machinery  must  be  kept  in  good  order. 
So  much  at  least  must  be  done  simply  to  leave  the  pro- 
ductive power  of  the  community  unimpaired.  At  the  same 
time,  before  any  addition  is  possible,  the  consumption  cap- 
ital also,  that  is  to  say,  the  more  durable  forms  of  material 
sources  of  enjoyment,  must  be  kept  up  in  amount  and 
quality. 

In  a  modern  society  we  must  necessarily,  for  clearness 
of  vision,  introduce  money  to  measure  the  growth  of 
wealth ;  and  the  reference  to  the  renewal  and  continuance 
of  capital  is  rather  to  the  value  2  than  to  the  things  them- 
selves. In  this  way  only  can  allowances  be  made  for 
substitution  and  for  growth,  in  the  variety  both  of  the 
means  of  production  and  of  consumable  commodities.  The 
real  net  produce  (measured  in  terms  of  money)  that  re- 
mains after  the  expenses  indicated  have  been  met,  is  obvi- 
ously more  than  is  covered  by  the  profits  of  capital  and 
the  rent  of  land ;  there  is  always  a  large  sum  in  the  hands 
of  labour,  which  may  or  may  not  be  saved ;  and  this  is 
especially  to  be  noted  if  we  use  the  term  "  labour  "  in  its 
widest  sense. 

This  annual  surplus  of  the  national  budget  (if  the  term 
may  be  so  far  extended)  may  be  spent  as  income,  or  be  set 
aside  as  capital.  Passing  over,  for  the  present,  the  motives 
which  determine  the  relative  proportions  of  the  distribution 
between  these  two  objects,  we  may  assume  that  the  amount 
actually  saved  will  depend  partly  upon  the  amount  which  can 

i  Cf.  Mill,  Bk.  I.,  Ch.  XL,  §  1. 

-  Under  the  usual  supposition  of  no  real  change  in  the  standard. 


200  PRINCIPLES   OF   POLITICAL   ECONOMY. 

be  saved.  Accordingly,  at  the  risk  of  some  repetition,  it 
seems  desirable  to  enumerate  the  principal  causes  which 
determine  the  fund,  from  which,  if  the  members  of  a 
society  choose,  savings  can  be  made.  Speaking  broadly, 
this  fund  will  depend  upon  the  amount  and  the  efficiency 
of  the  three  great  agents  in  production  —  land  (or  nature), 
labour,  and  capital  —  compared  with  what  is  required  for 
expenses  of  all  kinds,  including  those  of  government. 
The  elements  of  natural  resources,  and  the  causes  that 
govern  the  efficiency  of  labour  and  capital,  have  already 
been  discussed.  They  are  of  especial  importance  in  the 
case  of  new  countries.  The  colonists  carry  out  with  them, 
as  Adam  Smith l  observes,  a  knowledge  of  agriculture  and 
of  other  useful  arts  superior  to  what  can  grow  up  of  its 
own  accord,  in  the  course  of  many  centuries  among  savage 
and  barbarous  nations.  They  apply  the  productive  methods 
of  an  old  civilisation  to  the  virgin  land  and  unexhausted 
or  untried  natural  powers.  In  some  countries,  which  at 
one  time  have  apparently  reached  a  stationary  state,  the 
growth  of  wealth  has  been  again  stimulated  by  the  devel- 
opment of  foreign  trade.  A  striking  example  is  furnished 
by  Holland,  after  the  pacification  with  Spain  in  A.D.  1648. 
A  celebrated  statesman  2  estimated  that  from  this  year  to 
1669,  the  commerce  and  navigation  of  Holland  increased 
by  one-half ;  and  after  giving  an  enumeration  of  the  in- 
habitants, adds,  that  "  the  eighth  part  of  this  number  could 
not  be  supplied  with  necessaries  out  of  the  produce  of 
Holland,  it-  being  their  gain  by  traffic,  which  brings  in  the 
necessaries  for  the  other  seven-eighth  parts  of  the  whole 
people."  During  the  present  century,  one  of  the  principal 
causes  of  the  great  increase  in  the  wealth  of  the  United 
Kingdom  has  been  the  development  of  foreign  trade. 

The  extension  of  credit  increases  wealth  directly  and 
indirectly.     The  use  of  credit  instruments,  in  place  of  the 

1  Bk.  IV.,  Pt.  II.,  Ch.  VII. 

2  De  Witt,  Interest  of  Holland;  quoted  by  Macpherson,  Annals  of 
Commerce,  Vol.  II.,  p.  538. 


PRODUCTION.  201 

precious  metals,  saves  labour,  capital,  and  time,  in  the  dis- 
tribution of  products ;  banks  and  insurance  societies  serve 
to  collect  small  sums  on  the  one  hand,  and  on  the  other, 
to  advance  large  loans  to  productive  enterprise ;  and  it  is 
only  by  credit  that  the  complex  organisation  of  modern 
industry,  with  its  intricate  division  of  labour,  is  possible. 

Foreign  trade  and  credit,  in  their  turn,  are  associated 
with  improvements  in  the  means  of  communication.  Steam 
and  electricity  have  increased  to  an  extraordinary  degree 
the  mobility  of  labour  and  capital  and  the  adjustment  of 
supply  to  demand. 

The  difficulty  with  all  these  factors  in  national  produc- 
tion is  not  to  see  their  importance  when  pointed  out,  but 
to  realise  their  magnitude  relatively  to  small  causes  of 
disturbance.  At  the  time  of  its  occurrence,  for  example, 
a  commercial  crisis  seems  as  if  it  would  shake  down  the 
industrial  edifice ;  a  local  strike  seems  capable  of  ruining 
the  country  at  large ;  and  a  rise  in  a  foreign  tariff  seems 
to  endanger  our  whole  foreign  trade.  In  estimating  the 
amount  of  a  nation's  wealth  and  the  causes  of  variation 
in  the  rate  of  progress,  the  first  requisite  is  a  due  sense  of 
proportion  ;  and  the  preceding  outline  may  serve  to  recall 
the  general  principles,  which  have  elsewhere  been  dis- 
cussed in  some  detail. 

We  have  next  to  consider  the  motives  which  induce 
people  to  prefer  future  to  present  gratification,  or  the 
causes  which  determine  how  much  of  the  national  surplus 
or  real  net  produce  will  be  added  to  capital.  . 

§  3.  The  Will  to  save.  The  will  to  save,  like  the  power 
to  save,  depends  upon  a  group  of  causes,  and,  again,  the 
difficulty  is  mainly  that  of  enumeration  with  just  em- 
phasis. 

The  most  important  condition  appears  to  be  security, 
which  operates  in  many  ways.  The  power  of  government 
is  overwhelming  compared  with  that  of  any  individual ; 
and  one  of  the  worst  forms  of  insecurity  is  that  which 
arises  from  despotic  and  arbitrary  government.  Many 


202  PRINCIPLES   OF   POLITICAL   ECONOMY. 

of  the  provinces  of  Turkey  are  endowed  with  splendid 
natural  resources,  and  the  peasantry  are,  by  nature,  indus- 
trious, temperate,  and  thrifty.  But  they  present  number- 
less indications  of  the  decline  following  upon  misgovern- 
ment.  In  Syria,  for  example,  "  the  population  is  estimated 
to  be  less  than  a  tenth  of  what  it  once  amounted  to.  The 
soil,  in  many  places  remarkably  fertile,  is  to  a  large  extent 
impaired  by  neglect ;  terraces,  for  cultivation  on  the  hill- 
sides, have  been  allowed  to  fall  into  ruin ;  and  the  general 
neglect  has  injured  even  the  climate."  1  Adam  Smith 
observes,  in  explaining  his  second  canon  of  taxation,  that 
the  experience  of  all  nations  shows  that  a  very  consider- 
able degree  of  inequality  is  not  nearly  so  great  an  evil  as 
a  very  small  degree  of  uncertainty.2  Undoubtedly  one  of 
the  great  roots  of  England's  commercial  prosperity  may  be 
traced  to  the  persistent  opposition  on  the  part  of  the  people 
to  the  arbitrary  exactions  of  the  crown  or  the  aristocracy. 
The  leading  principle  of  Magna  Charta  itself  is  security. 
"  Clause  by  clause,"  says  Stubbs,  "  the  rights  of  the  com- 
mons are  provided  for  as  well  as  the  rights  of  the  nobles, 
the  interest  of  the  freeholder  is  everywhere  coupled  with 
that  of  the  barons  and  knights ;  the  stock  of  the  merchant 
and  the  wainage  of  the  villein  are  preserved  from  undue 
severity  of  amercement,  as  well  as  the  settled  estate  of  the 
earldom  or  barony.  The  knight  is  protected  against  the 
compulsory  exaction  of  his  services,  and  the  horse  and  cart 
of  the  freeman  against  the  irregular  requisition  even  of 
the  sheriff.  In  every  case  in  which  the  simple  freeman  is 
not  secured  by  the  provision  that  primarily  affects  the  knight 
or  baron,  a  supplementary  clause  is  added  to  define  and  pro- 
tect his  right ;  and  the  whole  advantage  is  obtained  for  him 
by  the  comprehensive  article  which  closes  the  essential  part 
of  the  charter."  3  It  was  this  same  principle  of  security  which 

1  Chisholm's  Commercial  Geography,  p.  312. 

2  Of  Benthara,  Vol.  I.,  p.  311:   "  When  security  and  equality  are  in 
opposition,  there  should  be  no  hesitation  ;  equality  should  give  way." 

8  Constitutional  History,  Vol.  I.,  p.  631. 


PRODUCTION.  203 

at  a  later  stage  enabled  the  villeins  in  England  to  pass 
through  a  species  of  land-and-stock  lease  or  mStaierie  to 
the  practical  ownership  of  their  lands.1  Elizabeth,  one  of 
the  strongest  of  our  monarchs,  was  compelled  to  abandon 
monopolies  by  the  fathers  of  those  who  in  the  next  gener- 
ation passed  the  Petition  of  Right 2  ;  the  Civil  War  in 
England,  and  the  revolt  of  the  American  colonies,  were 
both  due  to  straining  the  prerogatives  of  the  crown. 

Mill 3  has  said  that  security  consists  of  protection  by  the 
government,  and  protection  against  the  government,  and 
that  the  latter  is  more  important ;  and  again,  that  the  only 
insecurity  that  is  altogether  paralysing,  is  that  arising 
from  the  government,  or  from  persons  invested  with  its 
authority.  Security  against  the  arbitrary  exactions  of 
despotism  is  no  doubt  a  necessary  condition  for  the  devel- 
opment of  industry.  It  is,  however,  rather  negative  than 
positive  in  character,  and  it  is  a  mistake  to  suppose  that 
the  security  afforded  by  the  government  is  of  compara- 
tively minor  importance.  On  the  contrary,  as  Bentham 
declares,  the  care  of  security  is  the  principal  object  of 
legislation  ;  and  without  law  there  is  "  no  security,  conse- 
quently no  abundance  nor  even  certain  subsistence."  Se- 
curity, he  affirms,  is  the  distinctive  mark  of  civilisation  ; 
and  it  is  entirely  the  work  of  the  law.  It  is  plain  that 
security  in  this  sense  means  much  more  than  security  against 
the  government.  It  implies  not  only  protection  against 
robbery  from  within  and  invasion  from  without,  but  above 
everything,  security  for  the  enforcement  of  contracts. 
"If  industry  creates,  it  is  the  law  which  preserves;  if,  at 
the  first  moment  we  owe  everything  to  labour,  at  the 
second  and  every  succeeding  moment  we  owe  everything 
to  the  law." 4  The  industry  of  modern  civilisation  is  gov- 

1  Cf.  Bk.  II.,  Ch.  VII. 

2  "  To  have  suffered  in  the  recent  (1628)  resistance  to  arbitrary  taxa- 
tion was  the  sure  road  to  a  seat."  — GREEX. 

3  Principles,  Bk.  I.,  Ch.  VII.,  p.  6. 

4  Principles  «/  Civil  Code,  Pt.  I.,  Ch.  VII. :  "  Of  Security." 


204  PRINCIPLES  OF  POLITICAL  ECONOMY. 

erned  and  animated  by  contract ;  it  depends  for  its  very 
existence  upon  the  constant  fulfilment  of  an  infinite  series 
of  bargains ;  and,  in  the  last  resort,  it  is  the  possibility  of 
appeal  to  the  resistless  power  of  the  state  that  is  the 
guarantee  of  fulfilment. 

Apart  from  the  general  enforcement  of  contracts,  the 
government  may  increase  security  by  rendering  certain 
clauses  in  contracts  compulsory  and  giving  to  certain 
terms  an  equitable  interpretation.  In  contracts  for  'the 
hire  of  land,  for  example,  it  is  of  great  importance  that 
the  tenant  should  be  able  to  put  upon  and  into  the  land 
the  capital  requisite  for  good  husbandry  ;  but  to  do  this 
he  must  have  the  assurance  either  that  he  will  be  able  to 
withdraw  it  on  the  termination  of  his  lease,  or  else  receive 
fair  compensation.  One  of  the  greatest  checks  to  the 
accumulation  of  agricultural  capital  until  quite  recently 
was  the  preferential  legislation  in  favour  of  the  land-owner. 
Another  good  example  is  furnished  by  the  development 
of  foreign  trade ;  for  a  long  period  a  foreign  merchant  was 
responsible  not  only  for  his  own  debts  and  crimes  in  any 
country,  but  even  for  those  of  his  compatriots.  The  earli- 
est commercial  treaties  were  designed  to  afford  to  the 
foreign  trader  on  reciprocal  terms  some  part  of  the  security 
enjoyed  by  the  home  trader. 

Returning  to  the  general  question,  it  may  be  observed 
that  the  longer  the  period  of  expectation  of  fulfilment  is 
extended,  so  much  greater  ought  to  be  the  security.  Just 
as  for  the  moment  an  inconvertible  currency  may  serve  as 
well  as  gold  for  the  medium  of  exchange,  so  for  the 
moment  martial  law  or  lynch  law  may  suffice  to  preserve 
order  and  enforce  payment  for  purchases.  For  deferred 
payments,  however,  a  more  stable  standard,  and  for  deferred 
obligations  a  more  stable  government,  is  required.  And 
from  the  nature  of  the  case,  —  from  the  very  essence  of  the 
conception,  —  the  accumulation  of  capital  involves  the 
anticipation  of  security  in  the  future.  It  is  sometimes 
said  that,  tinder  the  influence  of  the  French  Revolution, 


PRODUCTION.  205 

Bentham  attached  too  much  importance  to  security.  It 
would  be  more  just  to  say  that  at  present,  in  the  midst  of 
profound  peace, —  external  and  internal, —  we  are  so  famil- 
iar with  security  that  we  look  upon  it  as  part  of  a  state  of 
nature,  instead  of  regarding  it,  so  far  as  industry  is  con- 
cerned, as  the  latest  product  of  civilisation.  The  sub- 
ject will  again  demand  attention  in  connection  with  the 
economic  foundations  of  the  system  of  private  property.1 

Analogous  to  the  security  afforded  by  government  and 
against  government  is  that  afforded  by  and  against  the 
powers  of  nature.  If  a  country  is  naturally  unhealthy,  or 
if  it  is  subject  to  earthquakes  or  other  physical  disasters, 
and  life  is  uncertain,  the  value  of  a  future  good  is  dis- 
counted at  a  higher  rate.  The  occurrence  of  great  plagues, 
apart  from  the  destruction  of  labour,  is  usually  accompanied 
by  extravagant  expenditure : 2  "  let  us  eat  and  drink,  for 
to-morrow  we  die." 

Next  in  order  to  the  various  kinds  and  degrees  of  secur- 
ity we  may  place  the  group  of  motives  which  are  included 
under  the  phrase,  the  effective  desire  of  accumulation. 
This  desire  may  be  deficient  simply  owing  to  lack  of 
imagination  as  regards  the  future,  to  a  want  of  power  to 
look  forward.  There  may  be  no  aversion  to  labour,  and 
the  dangers  of  famine,  if  provision  is  not  made,  may  be 
very  real,  and  yet,  as  in  the  famous  instance  quoted  by 
Mill,  of  the  Indians  on  the  St.  Lawrence,  no  work  is  under- 
taken in  which  the  return  is  at  all  distant*  and  the  growth 
of  capital  is  effectually  prevented. 

The  simple  reason  is  that  the  vividness  of  the  present 
makes  the  future  dim  and  uncertain.  We  may  descend 
much  lower  in  the  scale,  until  indeed  we  reach  a  point  at 

1  See  Bk.  II.,  Ch.  II.,  §  5. 

a  See  the  well-known  description  of  Thucydides,  Bk.  II. :  "...  they 
justified  a  speedy  fruition  of  their  goods,  even  for  their  pleasure  or  licen- 
tiousness, as  men  that  thought  they  lived  their  lives  but  by  the  day." 

See  also  De  Foe's  Journal  of  the  Plague  Year:  "...  from  that  hour 
all  trade,  except  such  as  related  to  immediate  subsistence,  was,  as  it  were, 
at  a  full  stop." 


206  PRINCIPLES   OF   POLITICAL   ECONOMY. 

which  primitive  men  seem  lower  than  animals  in  providing 
for  the  future.  "  The  native  Australian  is  entirely  desti- 
tute of  foresight,  being  in  this  respect  inferior  to  many 
animal  species.  In  a  general  way  not  the  most  elementary 
idea  of  providing  or  preserving  nourishment  for  a  future 
occasion  enters  his  head.  In  his  hours  of  plenty  he  gorges, 
without  care  for  the  morrow,  and  when  hunger  —  vora- 
cious hunger  —  is  once  appeased  he  wastes  and  even  vol- 
untarily destroys  all  that  is  left."  l 

Sometimes  the  effective  desire  of  accumulation  is  defi- 
cient on  the  moral,  rather  than  on  the  intellectual,  side. 
We  find  abundant  instances  in  the  most  civilised  nations 
— as  in  the  disregard  for  the  welfare  of  wife  and  children, 
and  in  the  failure  to  secure  independence  in  sickness  and 
old  age.  In  some  cases,  however,  the  desire  of  accumula- 
tion becomes  a  dominant  or  fixed  idea;  the  end  is  lost 
sight  of  in  the  means ;  and  to  add  field  to  field  or  pound 
to  pound  becomes  the  mainspring  of  life. 

It  is  love  of  gain  in  this  extreme  form  which  has  always 
been  so  severely  condemned  by  philosophy  and  the  Church. 
It  is  one  of  the  best  examples  of  the  need  of  treating  po- 
litical economy  as  a  positive  science  which  observes  and 
classifies  facts,  and  not  as  a  body  of  doctrines  which  incul- 
cates certain  maxims.  From  the  point  of  view  of  happi- 
ness—  whether  of  the  community  or  of  the  individual  — 
still  more  from  the  point  of  view  of  freedom,  of  self-culture, 
and  of  the  many  forms  of  ideal  morality — the  effective 
desire  of  accumulation  may  in  some  cases  be  described  as 
a  degraded,  unreasoning  superstition.  It  is,  however,  a 
great  mistake  to  suppose  that  this  extreme  love  of  wealth 
is  only  a  product  of  the  highest  industrial  communities, 
and  that  in  the  simpler  stages  of  society  it  is  absent. 
"  This  commercialisation  of  morals,"  says  M.  Letourneau,2 
"  is  not  incompatible  with  a  savage  state.  It  will  flourish 
in  any  society,  civilised  or  savage,  when  the  love  of  any 

1  Letourneau's  Property  (translation),  p.  30. 

2  Ibid.,  p.  96. 


PRODUCTION.  207 

sort  of  gain  becomes  the  ruling  motive,  the  mainspring  of 
every  act."  Thus  of  an  African  tribe,  we  are  told,  by  Sir 
Samuel  Baker,1  that  "  they  would  fight  for  their  cattle, 
although  they  would  allow  their  families  to  be  carried  off 
without  resistance ;  cattle  would  procure  another  family, 
but  if  the  animals  were  stolen  there  would  be  no  remedy." 
Again,  Burton2  says  of  the  East  African  :  "  He  will  refuse 
a  mouthful  of  water  out  of  his  abundance  to  a  man  dying 
of  thirst.  He  will  not  stretch  out  his  hand  to  save  an- 
other's goods,  though  worth  thousands  of  dollars,  if  he  is 
not  paid  to  do  it.  But  of  his  own  property,  if  a  ragged 
cloth  or  a  lame  slave  be  lost,  his  violent  excitement  is  ridic- 
ulous to  behold." 

It  is  not  necessary  to  dwell  longer  upon  the  pathology 
of  the  desire  of  accumulation;  nations  have  been  ruined 
by  reckless  extravagance,  but  the  process  of  accumulation 
—  the  growth  of  wealth  —  is  not  necessarily  or  usually 
associated  with  the  decay  of  men.  The  desire  to  rise  in 
the  social  scale,  and  the  importance  attached  to  wealth  as 
such,  have  been  prominent  factors  in  social  progress. 

One  of  the  principal  fallacies  of  the  traditional  English 
political  economy3  arises  from  neglecting  to  observe  that 
the  mere  possession  of  wealth  may  constitute  its  chief 
utility,  and  that  the  sense  of  power  afforded  by  retaining 
wealth  may  be  far  greater  than  any  pleasure  afforded  by 
consumption.  Under  a  money  economy  in  which  any 
form  of  wealth  through  the  agency  of  banks  and  brokers 
may  be  converted  by  the  individual  into  credit  documents 
which  give  him  so  much  general  purchasing  power,  the 
effective  desire  of  accumulation  depends  largely  upon  this 
characteristic  of  saving.  Moralists  may  deplore  the  fact 

i  Quoted,  ibid.,  p.  96.  2  Ibid.,  p.  97. 

8  "  The  greatest  part  of  the  utility  of  wealth,  beyond  a  very  moderate 
quantity,  is  not  the  indulgences  it  procures,  but  the  reserved  power  which 
its  possessor  holds  in  his  hands  of  attaining  purposes  generally  ;  and  this 
power  no  other  kind  of  wealth  confers  so  immediately  or  so  certainly  as 
money."  —Mill's  Principles,  p.  3.  But  he  too  often  omits  the  applica- 
tion. 


208  PRINCIPLES  OF  POLITICAL   ECONOMY. 

that  worth  in  popular  estimation  should  in  any  degree  be 
reckoned  by  wealth,  but  to  deny  it  would  be  wilful  illu- 
sion. In  truth,  however,  the  acquisition  of  wealth  for 
its  own  sake  is  not  so  much  opposed  to  common-sense 
morality  as  may  at  first  sight  appear;  it  is  proverbially 
associated  with  health  and  wisdom;  it  calls  for  prudence, 
energy,  and  self-restraint;  it  opens  up  a  path  to  the 
higher  stages  of  political  and  social  activity;  and  a  cer- 
tain amount  of  accumulated  wealth  is,  in  most  cases,  a  con- 
dition of  independence  and  personal  freedom. 

It  follows,  from  the  importance  attached  to  the  desire  to 
rise  in  the  social  scale,  that  the  growth  of  capital  will  vary 
with  the  distribution  of  the  national  wealth  amongst  differ- 
ent classes  and  with  the  facilities  afforded  for  investment. 
If  most  of  the  land  is  held  by  an  aristocracy,  history  proves 
that  the  love  of  display  and  magnificence  generally  over- 
powers the  desire  of  accumulation  and  improvement.  A 
well-known  passage  in  Adam  Smith l  describes  the  way  in 
which  the  feudal  baron  exchanged  for  a  pair  of  diamond 
buckles,  or  something  equally  frivolous,  the  maintenance 
of  a  thousand  men  for  a  year,  and  with  it  all  the  corre- 
sponding weight  and  authority.  A  striking  contrast  is 
drawn  with  the  small  proprietor,  who  knows  every  part  of 
his  little  territory,  and  who  is  generally,  of  all  labourers,  the 
most  industrious,  the  most  intelligent,  and  the  most  suc- 
cessful. In  recent  times,  however,  great  land-owners  and 
large  farmers  have  caused  a  great  increase  in  agricultural 
wealth.2 

In  mercantile  communities  the  accumulation  of  capital 
is  generally  rapid,  although  it  does  not  commonly  remain 
for  more  than  two  or  three  generations  in  the  same  fami- 
lies. From  the  national  standpoint  this  transference  is  of 
little  importance. 

It  is  obvious  that,  other  things  being  equal,  accumulation 
will  vary  with  facilities  for  investment.  Since  the  institu- 

1  Bk.  III.,  Ch.  IV. 

2  See  supra,  Ch.  IX. 


PRODUCTION.  209 

tion  of  savings  banks,  building  societies  and  the  like,  the 
working  classes  have  saved  large  sums ;  and  joint-stock 
companies  with  shares  of  small  denominations  have  simi- 
larly stimulated  the  savings  of  the  middle  classes.  At 
present  Great  Britain,  like  Holland  at  an  earlier  period, 
lends  large  sums  to  foreign  states  (both  to  governments 
and  to  individuals),  and  but  for  this  outlet  the  difficulty  of 
finding  investments  must  have  checked  accumulation  con- 
siderably. As  Bagehot  pointed  out,  the  rapid  increase  of 
wealth  in  England  is  partly  due  to  the  democratic  nature 
of  its  capital. 

The  consideration  of  investments  naturally  leads  to  an 
examination  of  the  effects  of  the  rate  of  interest.1  Here 
we  have  to  balance  opposing  tendencies.  If  the  rate  is 
high  there  is  so  far  a  greater  encouragement  to  save.  But 
there  may  be  a  certain  reaction  upon  labour  and  produc- 
tion. For  the  more  wealth  goes  in  the  shape  of  interest  to 
capital,  there  will  be  less  left  for  wages  in  the  broadest 
sense,  and  so  far  there  will  be  less  encouragement  to  work, 
and  the  amount  produced  will  be  less.  To  take  a  concrete 
example :  if  the  rate  of  interest  is  high,  people  are  so  far 
more  willing  to  advance  money  upon  mortgages  of  land ; 
but  if  the  cultivators  are  bound  to  pay  large  sums  by  way 
of  usury,  their  energies  are  liable  to  be  crippled.  The  ex- 
orbitant rates  charged  by  the  Jews  in  Russia  and  other 
countries  have  no  doubt  caused  a  depression  in  agriculture, 
and  the  hatred  of  the  Jews  —  Juden-Hetze  —  has  thus  a 
natural,  economic  foundation,  and  need  not  be  ascribed  to 
race  prejudice.  From  the  earliest  times,  in  all  countries, 
the  great  curse  of  small  cultivators  has  been  the  custom  of 
mortgages.2  On  the  one  hand,  it  is  true  savings  have  been 
stimulated,  but  in  general  the  reaction  on  labour  has  been 
much  stronger. 

If  the  rate  of  interest  is  low,  in  order  to  secure  a  certain 
income  or  annuity,  a  larger  principal  sum  must  be  saved. 

1  Compare  infra,  Bk.  II.,  Ch.  XIII. 

2  An  admirable  example  is  furnished  by  Mommsen's  Eoman  History. 


1 


210  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Thus  the  rates  for  insurance  of  all  kinds  become  higher. 
At  the  same  time  labour  obtains  capital  more  cheaply,  and 
consequently  works  at  higher  pressure ;  so  that,  on  the 
whole,  there  may  be  a  larger  fund  from  which  savings  can 
be  made.  Again,  with  a  low  rate  of  interest  on  old  invest- 
ments, there  is  an  encouragement  to  new  undertakings.1 

Suppose,  for  example,  that  house  property  which  for- 
merly yielded  seven  per  cent  now  only  yields  five  per 
cent.  The  capital  value  of  the  houses  will  rise,  if  we  as- 
sume that,  to  begin  with,  the  rents  remain  the  same.  But 
a  great  stimulus  will  be  given  to  building  new  houses,  and 
the  ultimate  result  will  be  that  the  country  will  possess 
more  or  better  houses  let  at  lower  rents.  A  similar  argu- 
ment may  be  applied  to  machinery,  factories,  and  all  forms 
of  fixed  capital. 

Further  consideration  of  this  topic  may  be  deferred  to 
the  treatment  of  the  rate  of  interest.2  At  present  we 
are  only  concerned  with  the  rate  of  interest  as  affecting 
directly  and  indirectly  the  will  to  save. 

§  4.  Of  the  Accumulation  of  Different  Kinds  of  Capital. 
Hitherto  the  question  of  the  accumulation  of  capital 
has  been  discussed  without  reference,  except  for  illustra- 
tion, to  the  different  species,  and  capital  has  been  treated 
as  if  it  were  simple  and  homogeneous.  This  assumption  is 
justifiable  when  we  are  examining  only  the  great  forces 
at  work,  but  a  survey  of  the  principal  kinds  of  capital 
shows  that  the  rates  and  causes  of  accumulation  are  very 
different. 

Consider,  in  the  first  place,  that  part  which  is  practically 
sustaining  capital,  the  elementary  necessaries  of  food, 
clothing,  fuel;  it  is  plain  that  the  better  the  industrial 
organisation,  so  much  the  less  need  is  there  for  accumula- 
tion of  large  stocks.  Take,  for  example,  the  food  supply 
of  Great  Britain.  The  greater  part  is  produced  and  con- 
sumed annually,  e.g.,  cereals  ;  in  other  instances  the  period 

1  See  Giffen's  Stock  Exchange  Securities,  Ch.  III. 

2  Infra,  Bk.  II.,  Ch.  XIII. 


PRODUCTION.  211 

is  shorter,  e.g.,  fish ;  in  some  cases,  e.g.,  meat,  more  than  a 
year  is  required  for  the  full  preparation  of  the  product. 
Mr.  Atkinson  l  has  observed  that  the  whole  world  is  always 
within  a  year  of  starvation.  It  is  only  in  undeveloped 
countries  that  it  is  desirable  directly  to  accumulate  stores 
of  food  against  the  emergencies  of  famine.  There  must,  of 
course,  always  be  sufficient  for  present  needs  and  for  future 
reproduction,  but  beyond  this,  in  modern  industrial  socie- 
ties, accumulation  of  food  supplies  is  a  waste  of  productive 
power. 

The  same  argument  applies  to  clothing  and  fuel ;  beyond 
a  certain  point  a  large  stock  is  simply  an  indication  of  bad 
organisation. 

Even  as  regards  shelter,  it  is  waste  to  build  houses  before 
they  are  needed ;  and  it  is  not  generally  good  economy  to 
aim  at  excessive  durability,  that  is  to  say,  when  the  build- 
ings are  not  of  an  artistic  or  monumental  or  religious 
character.  As  Roscher2  points  out,  it  is  more  economical 
to  build  a  house  that  will  last  sixty  years  for  £2000,  than 
one  which  will  last  four  hundred  years  for  X4000,  because 
the  interest  saved  in  sixty  years  on  the  former  would 
suffice  to  build  three  such  houses. 

The  same  argument  applies  to  other  quasi-permanent 
forms  of  consumptive  capital,  such  as  works  of  art,  furni- 
ture, and  the  like.  Passing  over  the  products  of  genius 
which  are  beyond  the  operation  of  ordinary  economic 
laws,  substitution  is  in  most  cases  better  economy  than 
accumulation. 

As  regards  the  raw  materials  of  manufacture,  it  is  ob- 
viously waste  to  increase  supplies  beyond  the  requirements 
of  a  comparatively  limited  period.  For  in  the  concrete 
this  would  mean  that  traders  lock  up  their  capital  in  a 
shape  which  only  yields  a  negative  interest  in  the  form 
of  possible  deterioration,  and  the  certain  expense  of 
storing. 

1  Distribution  of  Products,  p.  3. 

2  Bk.  IV.,  Ch.  L,  §  233.    See  also  note. 


212  PRINCIPLES  OF  POLITICAL  ECONOMY. 

In  some  forms  of  auxiliary  capital,  e.g.,  roads,  railways, 
bridges,  regard  must  be  paid  to  a  more  distant  future,  but 
the  annual  charges  for  repairs  and  renewal  are  always 
large.  Machinery,  owing  to  the  liability  to  improvements, 
is  in  general  too  durable,  and  often  becomes  old  iron 
before  it  is  worn  out.  Ships  may  be  placed  in  the  same 
category. 

Capital  sunk  in  the  permanent  improvement  of  land, 
as  in  the  great  drainage  works  of  the  fens,  approaches 
more  nearly  to  the  popular  idea  of  capital  saved  once  for 
all,  and  handed  down  to  future  generations.  In  the  words 
of  Adam  Smith : l  "  The  capital  that  is  acquired  to  any 
country  by  commerce  and  manufactures  is  all  a  very  pre- 
carious and  uncertain  possession  till  some  part  of  it  has 
been  secured  and  realised  in  the  cultivation  and  improve- 
ment of  its  lands." 

We  are  now  in  a  position  to  see  more  clearly  the  force 
of  the  positions  taken  up  in  the  earlier  chapters  as  regards 
the  nature  and  function  of  capital.  Saving  is  a  very  dif- 
ferent thing  from  hoarding ;  wealth  that  is  saved  in  the 
economic  sense  is  at  the  same  time  used  and  consumed ; 
all  that  saving  essentially  implies  is  that  productive  power 
is  applied  and  directed  to  the  satisfaction  of  more  or  less 
distant  needs.  Accordingly,  paradoxical  as  it  may  appear, 
in  a  modern  industrial  society,  next  to  investment  in  com- 
panies, the  typical  form  of  saving,  as,  in  earlier  times,  of 
hoarding,  is  saving  of  "•  money."  The  solution  of  the  par- 
adox is  found  in  the  variation  in  the  constitution  and  uses 
of  money.  Before  credit  was  developed,  and  when  inter- 
est was  considered  both  sinful  and  illegal,  the  only  way  of 
saving  "  money  "  was  by  hoarding.  At  this  stage,  money 
was  simply  coined  treasure.  But  with  the  modern  system 
of  banking,  saving  money  really  means  that  a  person  hands 
over  to  the  banker  the  control  of  a  certain  part  of  his 
share  of  the  real  national  income,  including  services  as 
well  as  commodities.  The  banker  advances  to  the  broker, 
i  Bk.  III.,  Ch.  IV. 


PKODUCTION.  213 

the  broker  to  the  trader  or  manufacturer,  and  ultimately, 
the  money  saved  is,  in  general,  spent  on  some  form  of 
productive  labour. 

I  say  productive  labour,  because  the  goods  consumed 
must  be  replaced  with  profit,  in  order  that  the  system  may 
be  effectually  continued.1  Thus,  saving  is  not  so  much  the 
piling  up  of  consumable  commodities,  or  even  the  making 
of  machinery  and  the  building  of  factories,  as  the  direction 
of  the  national  energy  into  particular  channels  ;  and  the 
outcome  of  saving  is  a  growth  in  the  productive  power, 
with  a  corresponding  increase  in  the  consuming  power  of 
the  people  as  a  whole. 

By  the  same  path  we  also  reach  a  point  from  which  the 
mutual  dependence  of  material  and  personal  capital  can 
be  appreciated.  Without  the  latter,  the  former  is  abso- 
lutely useless  —  as  useless  as  a  ship  without  a  crew,  or  a 
city  without  inhabitants ;  and  similarly,  without  material 
capital,  personal  capital  is  like  a  crew  that  is  shipwrecked, 
or  a  city  after  an  earthquake  or  tornado. 

§  5.  Methods  of  estimating  the  Increase  of  Material  Cap- 
ital. Before  the  adoption  of  a  money  economy  the  only 
method  of  estimating  the  growth  of  wealth  is  by  simple 
enumeration.  In  the  case  of  the  possessions  of  Job,  for 
example,  we  are  told  that  his  sheep,  camels,  oxen,  and 
she-asses  were  respectively  twice  as  numerous  after  his 
affliction  as  before.  When  a  money  economy  has  been 
fully  established  we  naturally  estimate  the  wealth  of  indi- 
viduals in  terms  of  the  monetary  unit,  and  in  process  of 
time  the  same  method  is  applied  to  the  wealth  of  nations. 
Such  estimates  of  national  wealth  have  usually  been  made 
for  purposes  of  taxation.  The  Domesday  survey  is  a 
notable  combination  of  detailed  enumeration  with  valua- 
tion. 

Later   on   we   find    inventories   made   of    the   movable 

1  The  case  of  the  anticipation  of  revenue  by  the  unproductive  consumer 
will  be  considered  later  ;  as  also  the  question  of  over-production  and  excess 
of  supply.  Cf.  Bk.  III. 


214  PRINCIPLES  OF  POLITICAL   ECONOMY. 

wealth  of  households,  and  a  value  placed  upon  each  item 
so  that  a  tenth  or  fifteenth  might  be  taken  by  way  of  direct 
taxation.1  Such  a  detailed  process  in  modern  times  would 
be  found  not  only  odious,  but  impracticable,  although  it 
may  be  observed  in  the  United  States  some  attempt  is 
made  to  arrive  at  a  census  of  the  national  wealth  and  its 
value.  When  we  are  comparing  distant  periods,  especially 
with  the  view  of  comparing  the  progress  of  the  nation  as  a 
whole,  or  of  various  classes,  it  is  necessary  to  make  a  sur- 
vey of  the  principal  forms  of  wealth,  and  to  estimate  the 
quantity  and  quality  as  well  as  the  value.  In  the  same 
way,  if  we  are  comparing  the  wealth  of  different  nations  at 
the  present  time,  there  is  little  real  meaning  in  the  esti- 
mates of  wealth  per  head  of  population  in  terms  of  money.2 
Such  estimates  must,  at  any  rate,  be  supplemented  by  tak- 
ing into  account  the  principal  particular  elements  in  the 
national  resources,  and  the  principal  forms  and  quantities 
of  produce.8  Even  when  in  modern  times  we  compare  the 
wealth  of  the  same  nation  at  comparatively  short  intervals, 
—  say  ten  years,  —  in  spite  of  the  recent  improvements  in 
the  collection  and  the  methods  of  statistics,  the  comparison 
is  extremely  rough  and  can  only  be  relied  on  for  very 
general  purposes.  Take,  for  example,  the  estimates  of  the 
decennial  increase  in  the  wealth  of  the  United  Kingdom 
made  by  Mr.  Giffen,  the  results  of  which  have  become 
part  of  the  general  information  of  educated  people.  The 
general  method  of  procedure  is  as  follows :  As  a  basis  the 
assessments  for  income-tax  are  taken;  these  furnish  a 
reliable  minimum  of  a  considerable  part  of  the  national 
income.  The  next  step  is  to  find  out  the  corresponding 
capital  value.  For  this  purpose  the  various  schedules  are 
consulted,  and  the  gross  income  is  in  this  way  split  up  into 
classes  ;  and  these  various  classes  are  capitalised  at  a  suit- 

1  See  Dowell's  History  of  Taxation,  Vol.  I.,  Appendix  II.,  for  very 
curious  examples. 

2  As,  for  example,  in  Mulhall's  Dictionary  of  Statistics. 
8  As  given  in  works  on  commercial  geography. 


PRODUCTION.  215 

able  number  of  years'  purchase,  according  to  the  estimated 
permanence  of  the  source.  The  method,  it  will  be  ob- 
served, is  justified  by  the  root  conception  of  capital,  which 
is  based  on  future  capacity  of  satisfaction.  Thus  land *  is 
taken  at  twenty-six  years'  purchase,  houses  at  fifteen,  and 
quarries  and  mines  at  four  years',  respectively.  Certain 
deductions,  however,  fail  to  be  made.  Thus,  of  the  income 
of  trades  and  professions,  it  is  assumed  that  only  one-fifth 
is  derived  from  capital  (material),  the  rest  being  a  higher 
form  of  wages.  Care,  too,  must  be  taken  that  debts  of 
various  kinds  are  not  counted  as  assets,  e.g.,  consols,  deben- 
tures of  companies  and  the  like.  When  these  and  other 
allowances  have  been  made,  we  are  left  with  an  estimate  of 
that  part  of  the  nation's  capital  which  yields  income  liable 
to  income-tax.  So  far  the  estimate — if  the  numbers  of 
years'  purchase  are  accepted  —  is  comparatively  reliable. 
When,  however,  we  turn  to  the  items  of  income,  especially 
ordinary  wages,  which  are  not  assessed  for  taxation,  the 
basis  is  much  less  solid,  and  it  is  also  more  difficult  to 
know  how  much  should  be  ascribed  to  the  possession  of 
(material)  capital,  such  as  trade,  tools,  etc.  Mr.  Giffen 
himself  takes  only  one-tenth  of  the  income,  and  capitalises 
at  only  five  years'  purchase.  Corresponding  uncertainty 
is  found  in  estimating  the  capital  (now  generally  called 
consumption  capital)  which  does  not  yield  income  at  all, 
such  as  the  furniture,  or  more  generally,  the  movables,  in 
houses.  This  item  is  reckoned  at  half  the  value  of  the 
houses,  but  no  reason  is  assigned.  There  are  also  various 
forms  of  public  and  municipal  property,  of  which  it  is  diffi- 
cult to  get  a  money  value,  e.g.,  light-houses,  roads,  break- 
waters, dock-yards,  etc. 

Apart  from  other  difficulties,  there  is  always  the  funda- 
mental difficulty  of  a  possible  change  in  the  standard  of 
value.  There  .can  be  little  doubt  that  during  the  last 
twenty  years  there  has  been  a  considerable  appreciation  of 
gold,  in  other  words,  its  purchasing  power  has  risen,  or 
1  I  take  the  valuation  of  1885.  Growth  of  Capital,  p.  11. 


216  PRINCIPLES  OF  POLITICAL  ECONOMY. 

conversely,  a  certain  aggregate  money  estimate  represents 
a  greater  quantity  of  real  wealth.1 

At  the  same  time,  however,  in  spite  of  the  lack  of  pre- 
cision, and  the  conjectural  character  of  some  of  the  figures, 
calculations  such  as  those  made  by  Mr.  Giffen  are  of 
considerable  value,  especially  for  theoretical  purposes,  or 
rather,  in  connection  with  certain  very  general  economic 
problems.  They  bring  before  the  mind  the  great  bones  of 
the  national  economic  system,  and  perform  the  same  office 
for  the  economist  as  large  maps  for  the  politician.  It 
must  be  observed  also,  that  if  the  same  methods  are  used 
in  obtaining  and  calculating  the  figures,  although  the  abso- 
lute amounts  may  be  inaccurate,  the  comparative  results 
may  be  much  more  reliable,  just  as  if  you  weigh  children 
by  the  same  false  weights,  and  measure  them  by  the  same 
false  measures,  although  the  absolute  results  are  erroneous, 
you  may  tell  how  they  are  thriving  after  an  interval.2 

1  Essays  in  Finance,  Vol.  I.     Recent  Accumulations  of  Capital,  p.  169. 

2  Mr.  Giffen,  in  his  interesting  work  on  the  Growth  of  Capital,  gives 
many  calculations  of  previous  observers,  and  points  out  very  carefully 
many  sources  of  error.     In  the  limits  of  the  present  work,  however,  the 
statistical  question  does  not  admit  of  full  examination.    I  have  attempted 
to  apply  precisely  the  same  methods  of  calculation  as  those  adopted  by 
Mr.  Giffen  to  the  personal  or  living  capital  of  the  United  Kingdom,  with 
the  general  result  that  it  is  more  than  five  times  the  value  of  the  material 
or  dead  capital.     See  Economic  Journal,  Vol.  I.,  Pt.  I. 


BOOK   II. 

DISTRIBUTION. 


CHAPTER   I. 

THE   DISTRIBUTION   OF   WEALTH. 

§  1.  Meaning  of  Distribution.  In  treating  of  the  produc- 
tion of  wealth  —  material  and  immaterial  —  nothing  has 
been  said  except  incidentally  of  the  conditions  and  laws 
according  to  which  it  is  divided  amongst  the  various 
members  or  classes  of  the  community  for  consumption  or 
enjoyment.  This  is  the  problem  of  the  second  great  de- 
partment of  political  economy  :  namely,  distribution.  As 
in  production,  most  stress  is  laid  on  the  characteristic  that 
wealth  is  the  result  of  labour,  so  in  distribution  the  leading 
idea  is  that  it  is  capable  of  appropriation.  In  popular  dis- 
course the  term  distribution  is  often  used  with  reference 
to  the  mere  transference  of  commodities  from  place  to 
place,  or  from  person  to  person,  and  in  this  sense  we  speak 
of  the  distribution  of  wealth  by  means  of  ships,  roads,  rail- 
ways, and  the  like,  and  also  of  its  distribution  by  whole- 
sale and  retail  traders,  and  by  co-operative  societies.  But, 
as  already  explained,  distribution  of  this  sort  is  really  a 
part  of  production;  for  the  act  of  production  is  not  com- 
plete until  the  commodity  is  in  the  hands  of  the  consumer. 

Distribution,  as  distinguished  from  production,  refers  to 
the  apportionment  for  use  or  abuse  of  the  productive 
powers,  and  of  their  fruits  amongst  the  inhabitants  of  a 
countiy  or  industrial  area,  and  to  the  causes  and  conse- 
quences of  the  methods  of  apportionment  adopted.  That 
distribution  in  this  sense  may  affect  not  only  the  kind  but 
the  amount  of  production  has  been  shown  in  the  previous 
book  ;  with  regard,  for  example,  to  the  efficiency  of  labour, 

219 


220  PRINCIPLES  OF  POLITICAL  ECONOMY. 

the  accumulation  of  capital,  and  the  return  to  land ;  and 
in  the  sequel  the  interdependence  will  prove  to  be  much 
closer  than  has  yet  appeared.  At  the  same  time,  the  logi- 
cal distinction  between  the  two  departments  is  perfectly 
clear,  as  may  be  shown  by  a  simple  example.  Take  the 
case  of  agricultural  produce.  It  is  obvious  that  the  same 
annual  amount  (or  its  money  value)  may  be  distributed  in 
different  proportions  amongst  wages,  profits,  and  rents  at 
different  times ;  such  changes  are  not  the  result  of  chance, 
and  their  causes  ought  to  be  capable  of  discovery.  Simi- 
larly, at  any  particular  time  the  relative  proportions  of  the 
three  great  classes  of  income  are  determined  by  certain 
conditions  of  a  general  character,  and  within  each  of  these 
classes  there  are  species,  with  differences  which  admit  of 
an  approximate  solution.  To  adopt  an  illustration  of 
Adam  Smith,1  the  individuals  of  a  great  nation  are  like 
the  joint-tenants  of  a  great  estate ;  the  causes  which  gov- 
ern the  total  yield  can  be  considered  apart  from  the  allot- 
ment of  the  shares ;  the  former  correspond  to  the  laws  of 
production,  the  latter  to  those  of  distribution. 

§  2.  On  Mill's  Distinction  between  the  Laws  of  Produc- 
tion and  those  of  Distribution.  The  laws  of  production,  Mill 
affirms,  partake  of  the  character  of  physical  laws,  there  is 
nothing  optional  or  arbitrary  in  them ;  they  depend  upon 
the  ultimate  properties  either  of  matter  or  mind.  With 
the  distribution  of  wealth,  on  the  other  hand,  it  is  not  so  ; 
that  is  a  matter  of  human  institution  only;  the  things 
once  there,  mankind,  collectively  or  individually,  can  do 
with  them  as  they  like.  The  antithesis  so  strongly 
marked,  and  the  line  of  demarcation  so  sharply  denned 
in  these  sentences,  Mill  himself  considered  of  such  funda- 
mental importance,  that  he  states  in  his  autobiography  that 
the  emphasis  which  he  laid  upon  the  distinction  is  his 
principal  and  most  original  contribution  to  political  econ- 
omy. As  such  it  deserves  careful  examination. 

To  resume  :  man  cannot,  by  taking  thought,  increase  the 
ifik.  V.,  Ch.  II.,  p.  347. 


DISTRIBUTION.  221 

powers  of  natural  agents,  any  more  than  he  can  add  to  his 
own  stature ;  he  cannot,  by  mere  force  of  will,  make  inven- 
tions or  discover  new  processes  ;  without  desire  or  neces- 
sity he  may  indeed  do  nothing,  but  with  the  best  of 
intentions  and  the  utmost  need,  the  limits  of  production 
can  only  be  stretched  a  little  way.  With  the  progress  of 
society  the  power  of  man  over  nature  may  increase  indefi- 
nitely, but  at  any  particular  time  he  can  only  work  accord- 
ing to  his  means,  his  circumstances,  and  his  knowledge. 

At  first  sight,  however,  the  distribution  of  wealth  seems 
to  partake  of  the  character  of  laws  of  the  statute-book  or 
even  of  the  capricious  acts  of  an  arbitrary  power.  In  the 
most  highly  civilised  society  we  observe  that  a  large 
number  of  persons  perform  economic  services  which  are 
indispensable  to  the  preservation  of  the  lives  of  all  the 
members,  and  in  return  receive  but  little  more  than  neces- 
sary wages,  whilst  a  small  number  of  others,  without  any 
work  on  their  own  part,  receive  per  head  a  thousand,  or,  it 
may  be,  ten  thousand,  times  as  much  of  the  annual  produce 
of  the  land  and  labour.  In  lower  degrees  of  civilisation, 
the  real  inequalities  in  the  distribution  of  wealth  are  still 
more  startling,  for  there  we  often  find  a  small  number  the 
owners,  not  only  of  the  mass  of  the  material  wealth,  but  of 
the  mass  of  the  people  themselves.  One  of  the  earliest 
and  one  of  the  most  enduring  forms  of  property  is  slavery. 

Mill's  position,  then,  that  the  distribution  of  wealth  de- 
pends on  the  laws  and  customs  of  society,  which  again 
are  as  variable  and  mutable  as  the  opinions  and  feelings  of 
mankind,  may  appear  to  be  the  result  of  an  inductive 
inquiry.  And  the  corresponding  deduction  also  may  seem 
to  have  a  substantial  foundation ;  namely,  that  the  rules 
of  distribution  might  be  still  more  different  than  they 
have  been,  if  mankind  so  chose,  or  in  the  concrete,  that 
whatever  the  merits  or  defects  of  socialistic  schemes,  they 
cannot  be  truly  said  to  be  impracticable. 

There  can  be  little  doubt,  however,  that,  consciously  or 
unconsciously,  this  view  of  the  optional  or  arbitrary  char- 


222  PRINCIPLES   OF  POLITICAL   ECONOMY. 

acter  of  the  laws  of  distribution  was  deduced  from  a  cele- 
brated political  theory  which  has  recently  been  subjected 
to  severe  criticism  —  I  mean  the  theory  of  political  sov- 
ereignty.1 

§  3.  The  Theory  of  Sovereignty.  The  essence  of  the 
theory  is,  that  in  every  independent  political  society,  a 
centre  of  sovereignty  is  discoverable  which  in  that  state 
has  irresistible  power ;  the  forms  of  sovereignty  may  range 
from  absolute  despotism  to  unqualified  democracy,  or  may 
be  the  resultant  of  a  complicated  balance  of  opposing 
forces  ;  but  it  is  maintained  that,  from  the  very  nature 
of  the  independent  body  politic,  there  must  be  one  centre 
of  sovereignty,  as  in  the  body  material,  one  centre  of  mass. 
The  theory  is  best  understood  when  it  is  taken,  as  by  Aus- 
tin,2 in  a  purely  abstract  form.  If  it  were  objected  as 
regards  any  actual  concrete  case  that  there  was  no  such 
sovereign  power,  Austin  would  reply,  either  that  the  people 
concerned  did  not  constitute  a  political  society  at  all, — 
that  they  were  in  a  state  of  nature  (savagedom)  or  a  state 
of  anarchy,  —  or  that  the  society  was  not  independent.  In 
fact,  the  conceptions  of  sovereignty  and  independent  politi- 
cal society  are  really  inseparable  ;  the  one  implies  the  other. 
The  meaning  of  political  union  is  habitual  obedience  to  a 
sovereign  power,  and  the  essence  of  the  sovereign  power 
(apart  from  external  force  —  in  which  case  it  is  not 
independent),  is  to  command,  and  to  permit  is  the  same 
thing  as  to  command.  The  word  sovereignty,  from  old 
association,  is  apt  to  suggest  tyranny  or  absolute  mon- 
archy—  so  that  it  may  be  well  to  repeat  that  this  is 
only  one  species;  the  sovereign  may,  according  to  the 
number  of  persons  concerned,  be  an  oligarchy,  an  aristoc- 
racy, or  a  democracy.3 

1  The  phraseology  adopted  by  Mill  in  introducing  the  argument  con- 
firms this  view.     Of.  Bk.  II.,  Ch.  !.,§!. 

2  Jurisprudence,  Lecture  VI. 

8  The  doctrine  of  sovereignty  is  treated  with  somewhat  wearisome  re- 
iteration in  Austin's  Jurisprudence.  The  best  account,  for  the  purposes 
of  the  present  argument,  is  to  be  found  in  Sir  H.  Maine's  Early  History 


DISTRIBUTION.  223 

Now  it  may  be  admitted  that  in  the  explication  of 
various  conceptions  of  analytical  jurisprudence  —  e.g.,  law, 
right,  duty,  sanction  —  this  irresistible  sovereign  power  is 
of  primary  importance.  But,  as  Maine  has  shown,  to  take 
it  as  a  guiding  hypothesis  in  considering  the  actual  history 
of  all  societies  and  the  development  of  their  positive  laws 
and  permitted  customs  is  certain  to  lead  to  barren  or  erro- 
neous results.  Sovereignty  is,  in  truth,  nothing  more 
than  an  abstraction,  and  the  practical  value  of  all  sciences 
founded  on  abstractions  depends  on  the  relative  import- 
ance of  the  elements  rejected  and  the  elements  retained  in 
the  process  of  abstraction.^^ 

§  4.  Application  of  Sovereignty  to  the  Distribution  of 
Wealth.  Let  us  consider,  then,  the  elements  which  must 
be  rejected  in  order  to  arrive  at  Mill's  position,  that  the 
ruling  portion  or  sovereign  power  of  any  state  can  lay 
down  what  rules  it  chooses  for  the  distribution  of  wealth. 
For  the  sake  of  clearness  we  may  take  the  particular  case 
of  England  at  the  present  day,  with  the  further  assumption 
that  the  sovereign  power  is  vested  entirely,  as  it  is  practi- 
cally, in  the  House  of  Commons.  Let  it  be  supposed  that, 
under  a  wave  of  speculative  enthusiasm,  all  the  members 
elected  are  pledged  to  introduce  totally  new  rules  of  dis- 
tribution, to  be  enforced  by  the  sovereign  power.  The 
new  rules  —  being  opposed  to  those  at  present  in  force  — 
may  be  expected  to  be  of  the  nature  of  those  described  by 
Mill  in  the  following  passage :  "  If  individual  property 
were  excluded,  the  plan  which  must  be  adopted  would  be 
to  hold  the  land  and  all  its  instruments  of  production  as 
the  joint  property  of  the  community,  and  to  carry  on  the 
operations  of  industry  on  the  common  account.  The  di- 
rection of  the  labour  of  the  community  would  devolve 

of  Institutions,  Lectures  XII.,  XIII.    On  the  historical  development,  see 
Sir  F.  Pollock's  Science  of  Politics ;  and  for  recent  criticism,  Professor 
Sidgwick's  Elements  of  Politics.    In  the  text  I  have  only  considered  the 
question  with  a  view  to  its  economic  bearings. 
1  Early  History  of  Institutions,  p.  361. 


224  PRINCIPLES   OF   POLITICAL   ECONOMY. 

upon  a  magistrate  or  magistrates  whom  we  may  suppose 
elected  by  the  suffrages  of  the  community,  and  whom  we 
must  assume  to  be  voluntarily  obeyed  by  them.  The  di- 
vision of  the  produce  would  in  like  manner  be  a  public  act. 
The  principle  might  either  be  that  of  complete  equality  or 
of  apportionment  to  the  necessities  or  deserts  of  individuals 
in  whatever  manner  might  be  conformable  to  the  ideas  of 
justice  or  policy  prevailing  in  the  community." 

Now  it  may  be  objected  at  once  that  the  assumption  of 
voluntary  or -habitual  obedience,  which  is  essential  to 
the  application  of  the  theory  of  sovereignty,  is  in  reality 
neutralised  by  the  further  assumption  that  the  mode  of 
distribution  would  be  in  accordance  with  the  prevalent 
ideas  of  justice  or  policy.  In  order  to  give  real  effect  to 
the  arbitrary  power  of  sovereignty,  we  must  abstract  all 
those  ideas  which,  as  a  matter  of  fact,  are  the  results  of  ages 
of  growth  under  a  complexity  of  all  kinds  of  influences. 
A  nation,  however,  cannot  thus  throw  off  all  its  practical 
and  traditional  rules  in  favour  of  any  speculative  theories. 
It  is  one  thing  to  approve  of  an  abstract  resolution,  and 
quite  another  to  put  it  into  practice. 

As  regards  obedience,  Mill1  himself  may  again  be 
quoted :  "  To  suppose  that  one  or  a  few  human  beings, 
howsoever  selected,  could,  by  whatever  machine^  of  sub- 
ordinate agency,  be  qualified  to  adapt  each  person's  work 
to  his  capacity  and  proportion  each  person's  remuneration 
to  his  merits  —  to  be  in  fact  the  dispensers  of  distributive 
justice  to  every  member  of  a  community  ;  or  that  any  use 
which  they  could  make  of  this  power  would  give  general 
satisfaction,  or  would  be  submitted  to  without  the  aid  of 
force  —  is  a  supposition  almost  too  chimerical  to  be  reasoned 
against.  A  fixed  rule  like  that  of  equality  might  be 
acquiesced  in,  and  so  might  chance  or  an  external  neces- 
sity ;  but  that  a  handful  of  human  beings  should  weigh 
everybody  in  the  balance  and  give  more  to  one  and  less  to 
another  at  their  sole  pleasure  and  judgment,  would  not  be 
i  Bk.  II.,  Ch.  I.,  §  4. 


DISTRIBUTION.  225 

borne,  unless  from  persons  believed  to  be  more  than  men, 
and  backed  by  supernatural  terrors." 

That  is  to  say,  the  habitual  obedience  necessary  to  sover- 
eignty will  not  be  forthcoming  unless  the  commands  issued 
are  in  accordance  with  prevalent  common  sense  morality. 
I  do  not  question  that  such  moralit}'  may  vary  from  age 
to  age  and  from  people  to  people,1  but  it  cannot  at  the 
same  time  be  subject  to  and  dominant  over  the  sovereign 
power.  It  is  vain  to  say  that  the  ruling  portion  of  a  com- 
munity can  command  or  permit  any  kind  or  degree  of 
distribution  if,  at  the  same  time,  it  is  allowed  that  the  distri- 
bution actually  prescribed  or  allowed  is  the  result  of  long 
growth  and  can  only  be  gradually  altered  within  narrow 
limits.  It  is  true  that  the  sovereign  power  in  a  modern 
state  will  enforce  the  fulfilment  of  contracts  and  the  pay- 
ment of  taxes,  and  punish  with  penalties  up  to  death  the 
violation  of  certain  commands  ;  and  as  against  the  arbi- 
trary caprice  of  individuals  the  state  is  supreme.  But  it 
is  contrary  to  all  experience  —  both  past  and  present  —  to 
suppose  that  a  community,  by  a  resolution  of  any  delibera- 
tive assembly,  can  suddenly  change  its  whole  economic 
structure.  The  supposition  is  as  absurd  and  unfounded 
as  the  old  idea  of  a  social  contract. 

It  is  remarkable,  although  I  believe  the  fact  has  escaped 
attention,  that  this  doctrine  of  the  perfect  mobility  of  dis- 
tribution, as  it  may  be  called,  is  in  reality  exactly  opposed 
to  the  most  fundamental  position  of  the  traditional  Eng- 
lish political  economy.  From  Adam  Smith  downwards  it 
has  been  assumed  that  the  interference  of  the  state  beyond 
certain  limits  is  not  merely  mischievous,  but  useless.  The 
principle  of  laisser-faire  rests  quite  as  much  on  the  weak- 
ness of  the  state  as  on  the  strength  of  individual  enterprise. 
In  the  words  of  Adam  Smith,2  "  the  sovereign  is  completely 
discharged  from  a  duty,  in  the  attempting  to  perform 
which  he  must  always  be  exposed  to  innumerable  delu- 

1  See  next  section.  2  Bk.  IV.,  Ch.  IX. 


226  PRINCIPLES   OF  POLITICAL   ECONOMY. 

sions,  and  for  the  proper  performance  of  which  no  human 
wisdom  or  knowledge  could  ever  be  sufficient." 

"  Few  will  dispute,"  says  Mill,1  after  a  general  examina- 
tion of  laisser-faire,  "  the  more  than  sufficiency  of  these 
reasons,  to  throw  in  every  instance  the  burthen  of  making 
out  a  strong  case,  not  on  those  who  resist,  but  on  those 
who  recommend,  government  interference." 

It  is  surely  inconsistent  for  the  same  writer  at  one  time 
to  argue  that  owing  to  the  irresistible  power  of  the  state 
no  socialistic  scheme  can  be  pronounced  impracticable,  — 
although  the  essence  of  all  such  schemes  is  the  extreme  of 
interference,  —  and  at  another  to  maintain  that  non-inter- 
ference should  be  the  general  practice  on  account  of  the 
incapacity  of  governments.2 

§  5.  Historical  Examples  of  Variations  in  Distribution. 
It  is  probable  that  this  doctrine  of  the  omnipotence  of 
the  state  in  matters  of  distribution  would  not  have  been 
so  readily  accepted  had  it  not  been,  as  already  indicated, 
that  it  appears,  on  a  hasty  survey,  to  find  abundant  illustra- 
tions in  the  past.  The  methods  of  distribution  which  at 
various  times  have  prevailed  in  England,  offer  many  points 
of  contrast  with  our  present  industrial  systems.  Slavery 
and  serfdom  have  given  place  to  free  labour ;  customary 
land-tenures  of  various  kinds  have  given  way  to  contract 
and  commercial  principles ;  the  powers  of  guilds  and  cor- 
porations have  been  in  part  annulled  and  in  part  trans- 
ferred to  voluntary  associations  of  employers  and  of 
employed;  interest  on  loans,  which  for  centuries  was  con- 
demned by  public  opinion,  the  church,  and  the  law,  is  now 
associated  with  the  highest  respectability  and  is  looked  upon 
as  essential  to  the  stability  of  society.  In  many  other  cases 
crimes  have  become  virtues  and  virtues  crimes ;  compare, 
for  example,  the  encouragements  now  given  to  emigration 
with  the  severe  penalties  formerly  inflicted  on  the  emigrant 
and  his  abettor,  and  the  whippings,  brandings,  and  severe 
labour  inflicted  on  the  poor  at  the  end  of  the  sixteenth 

i  Bk.  V.,  Ch.  XI.        2  See  also  Sidgwick's  Principles,  Bk.  III.,  Ch.  II. 


DISTRIBUTION.  227 

century  with  the  reckless  indulgence  in  their  treatment  at 
the  end  of  the  eighteenth.1 

If  we  take  a  wider  survey  that  shall  include  the  civili- 
sations and  barbarisms  of  the  ancient  world,  the  varia- 
tions in  the  rules  for  the  distribution  of  wealth  become 
still  more  perplexing ;  on  the  one  hand,  we  discover  cus- 
toms (e.g.,  those  of  the  caste  system)  that  seem  as  strong 
as  physical  laws,  and  as  irrational  as  exploded  supersti- 
tions ;  and,  on  the  other,  we  observe  prototypes  of  co-op- 
eration and  community  of  goods  which  superficially,  at 
least,  suggest  the  golden  age  of  simple  justice.  The 
results  of  the  historical  method  seem  to  be  confirmed  by  a 
comparison  with  various  existing  societies,  and  the  actual 
distribution  of  wealth  in  different  nations  furnishes  end- 
less examples  of  the  permanence,  the  development,  and 
the  decay  of  the  older  types.2 

Even  in  nations  of  equal  degrees  of  civilisation,  there 
appear  to  be  remarkable  differences  in  the  distribution,  as 
contrasted  with  the  production,  of  wealth.  Mechanical 
inventions  and  new  chemical  processes  are  adopted  as 
rapidly  as  possible,  without  regard  to  the  nationality  of 
their  origin  ;  but  foreign  methods  of  public  finance  and 
foreign  legislation  for  land  or  labour  are  regarded  with  sus- 
picion. Compare,  for  example,  the  general  imitation  of 
English  railways  with  the  general  aversion  to  English  free 
trade,  and  the  compulsory  division  of  land  amongst  the 
children  in  France  with  the  law  and  custom  of  primogeni- 
ture in  this  country.  Seeing,  then,  that  different  societies 
have  acted  upon  very  different  rules  in  the  distribution  of 
wealth,  it  may  seem  natural  to  suppose  that  the  ruling 
portion  of  any  society  can  adopt  what  rules  it  chooses, 
and  the  conception  of  an  arbitrary  sovereign  power  may 
appear  to  be  the  only  sufficient  cause  for  the  endless  vari- 
eties of  distribution. 

1  Compare  Nicholls'  History  of  the  English  Poor  Laics,  Vol.  I.,  pp. 
186-187,  and  Vol.  II.,  pp.  119-120. 

2  Cf.  Letourneau,  Property,  its  Origin  and  Development. 


228  PRINCIPLES   OF   POLITICAL   ECONOMY. 

But  as  in  so  many  other  sciences,  so  in  economics,  the 
appeal  to  nature  generally  ends  in  barren  verbalism  or 
positive  error.  Certainly,  economic  history  gives  no  coun- 
tenance to  the  theory  that  the  distribution  of  wealth  in 
the  past  has  been  due  to  the  caprices  of  sovereignty ;  and 
simply  to  assert  that  the  customs  actually  governing  dis- 
tribution have  been  permitted  by  the  sovereign  power, 
gives  us  no  clue  to  their  origin  or  strength.  In  fact,  in 
economic  as  in  other  theory,  simply  to  look  for  illustra- 
tions of  what  we  consider  natural,  is  to  shut  our  eyes  to 
the  actual  processes  of  development  or  decay. 

Similarly  as  regards  the  future,  the  conception  of  a  sover- 
eign people,  "once  the  things  are  there,"  distributing  them 
as  it  chooses,  is  either  useless  or  mischievous.  It  is  use- 
less, if  it  only  means  that  the  whole  is  stronger  than  the 
part ;  it  is  mischievous,  if  it  leads  enthusiasts  to  imagine 
that  they  have  only  to  make  their  Utopias  sufficiently 
attractive,  and  their  establishment  is  simply  a  matter  of 
a  general  election.  For  the  purposes  of  practical  reforms, 
it  would  be  much  better  to  assume,  with  the  older  writers, 
that  the  state  is  capable  of  nothing,  rather  than  that  it  is 
capable  of  everything ;  for  in  the  former  case,  the  spur  is 
given  to  voluntary  effort,  whilst  in  the  latter,  we  fall  down 
before  the  idol  of  a  good  despotism.  And  what  is  true  of 
practical  reforms  is  equally  true  of  scientific  investigation. 
The  assumption  that  the  laws  of  the  distribution  of  wealth 
are  to  be  deduced  from  the  conception  of  political  sover- 
eignty, can  only  lead  to  the  neglect  of  the  forces  actually  at 
work  in  the  past  or  present.  The  great  variations  in  the 
methods  of  distribution  do  not  imply  that  no  laws  are  dis- 
coverable, but  only  that  the  discovery  may  be  a  matter  of 
difficulty.  At  a  time,  however,  when  the  apparent  vaga- 
ries of  dialects  and  of  superstitions  have  been  brought 
under  the  domain  of  science,  it  does  not  seem  unreason- 
able to  hope  that  the  vagaries  of  the  distribution  of  wealth 
may  also  be  resolved  into  uniformities ;  and,  as  a  matter 
of  fact,  during  recent  years  great  progress  has  been  made 


DISTRIBUTION.  229 

in  this  direction  by  the  application  of  the  historical  and 
comparative  methods. 

Before  proceeding  to  state  the  plan  to  be  pursued  in 
the  present  work  with  regard  to  the  laws  of  distribution, 
I  may  notice  an  application  of  the  term  which  has  received 
considerable  support. 

§  6.  Distribution  and  Exchange.  In  the  two  most  im- 
portant works  in  political  economy  by  English  writers1 
since  Mill,  the  distinction  between  distribution  and  ex- 
change has  been  abandoned.  Certain  assumptions  have 
been  tacitly  or  avowedly  made  regarding  private  property 
and  freedom  of  contract,  and  the  various  species  of  income 
have  then  been  regarded  as  essentially  cases  of  value  or 
price  ;  thus  wages,  profits,  and  rent  are  reduced,  if  we  take 
a  broad  view  of  this  method,  to  the  prices  paid  for  the 
use  of  labour,  capital,  and  land,  respectively.  It  is  no 
doubt  true,  and  subsequently  the  fact  will  call  for  con- 
siderable attention,  that  in  modern  industrial  societies  the 
distribution  of  wealth  —  and  especially  of  its  annual  pro- 
duce —  depends  largely  upon  the  reciprocal  exchange  of 
the  services  of  the  three  great  productive  agents.  But 
even  if  the  dependence  of  distribution  on  exchange  were 
closer  than  it  is,  there  is  no  reason  why  a  logical  separa- 
tion should  not  be  made.  For  it  is  equally  true  to  say 
that  in  modern  industry  exchange  is  absolutely  essential 
to  production,  and  yet  in  this  case  the  separation  of  the 
two  departments  is  admitted.  It  seems  desirable  for 
several  reasons  to  follow  Mill's  example,  and  to  treat  of 
the  general  questions  of  distribution  apart  from  and  ante- 
cedently to  the  particular  method  resting  upon  exchange. 
In  the  first  place  exchange  can  only  be  ranked  as  the 
principal  factor  in  distribution  in  modern  times  and  in 
the  most  advanced  nations ;  and  if  we  are  to  consider  this 
agency  alone,  there  will  be  little  scope  for  the  application 

1  Professor  Sidgwick,  in  his  Principles,  entitles  Bk.  II.  Distribution 
and  E.f  change ;  Professor  Marshall  calls  his  Bk.  VI.  Value,  or  Distribu- 
tion and  Exchange. 


230  PRINCIPLES  OF  POLITICAL   ECONOMY. 

of  the  historical  and  comparative  methods  which  in  other 
departments  of  knowledge  have  been  most  fruitful.  To 
narrow  the  field  of  economic  inquiry  in  this  way  is  to 
make  it  mainly  an  analysis  of  modern  practices  and  a  col- 
lection of  empirical  rules ;  any  further  generality  can  only 
be  attained  by  hypotheses.  But,  secondly,  exchange  even 
at  the  present  time  is  considerably  modified  by  other 
principles  of  distribution.  The  initial  advantages  of  posi- 
tion, not  only  of  individuals  but  of  classes,  depend  to  a 
great  extent  upon  the  laws  and  customs  governing  in- 
heritance and  bequest,  and  it  would  be  absurd  to  speak 
of  an  exchange  of  services  between  the  dead  and  the 
living.  Again,  logically  the  institution  of  private  property 
must  be  regarded  as  a  condition  precedent  to  exchange, 
but  what  is  and  is  not  implied  in  this  institution  is  too 
large  a  problem  to  be  passed  over  with  an  assumption,  and 
the  distribution  of  private  property  must  vary  according 
to  the  content  of  the  conception.  "It  is  not  difficult," 
as  Maine1  observes  of  a  part  of  this  problem,  "to  point 
out  the  extreme  difference  of  the  conclusions  forced  on 
us  by  the  historical  treatment  of  the  subject  from  those 
to  which  we  are  conducted  when,  without  help  from 
history,  we  merely  strive  to  analyse  our  prima  facie  im- 
pressions." 

It  is  common  learning  now  that  the  movement  of  pro- 
gressive societies  has  hitherto  been  a  movement  from 
status  to  contract2;  but  little  more  than  a  beginning  has 
been  made  in  the  discovery  of  the  actual  stages  of  the 
process.  One  of  the  most  interesting  of  modern  specula- 
tions is  whether  this  movement  has  reached  its  limit  and 
is  even  to  be  reversed.  It  can  hardly  be  maintained  that 
the  appeal  to  history  is  irrelevant ;  on  the  contrary,  it  may 
be  urged  that  we  can  only  make  a  forecast  of  the  future 
by  looking  back  to  the  past.  Some  part  of  these  problems, 
of  which  an  indication  has  just  been  given,  may  no  doubt 
be  advantageously  transferred  to  the  department  of  the 
1  Ancient  Late,  p.  174.  2  Ibid.,  p.  170. 


DISTRIBUTION.  231 

influence  of  government1  or  the  art  of  political  economy,2 
but  the  fundamental  principles  involved  ought  to  receive, 
as  they  do  in  Mill's  arrangement,  an  earlier  exposition. 
The  importance  and  meaning  of  exchange  as  the  basis 
of  distribution  can  only  be  appreciated  when  presented 
against  the  background  of  a  past  in  which  other  principles 
prevailed ;  and  if  this  method  of  distribution  can  be  shown 
to  be  a  survival  of  the  fittest,  which  has  been  perforce 
thrust  upon  so-called  sovereign  powers,  it  will  obviously, 
both  for  critical  and  constructive  purposes,  be  of  much 
greater  value  than  if  it  is  regarded  merely  as  a  hypothesis 
adopted  to  explain  the  present  state  of  society. 

§  7.  Ideal  Economic  Distribution.  It  will  of  course  be 
readily  allowed  by  those  who  do  not  accept  the  theory  of 
sovereignty,  that  governments  may  exercise  great  con- 
trol in  many  cases  over  the  distribution  of  wealth.  The 
methods  and  results  of  such  interference  will,  following 
Mill's  example,  be  discussed  later,  but  a  preliminary  in- 
quiry may  be  touched  upon  at  the  present  stage.  The 
question  is  this:  Seeing  that  governments  have,  in  their 
control  of  distribution,  proceeded  at  different  times  and 
places  on  very  different  principles,  and  seeing  that  philoso- 
phers and  reformers  still  set  up  many  different  ideals  at 
which  governments  should  aim,  has  any  one  of  these 
methods  a  claim  to  be  called  peculiarly  economic,  and  if 
so,  on  what  grounds  ?  Or,  more  briefly,  what  scheme  of 
distribution  is  economically  the  best? 

If  the  view  of  the  relation  of  political  economy  to  ethics, 
taken  up  in  the  introduction  to  this  work,  be  adopted, — 
and  it  may  claim  to  be  the  traditional  English  view,  —  only 
one  answer  to  this  question  seems  possible,  and  that  is,  the 
answer  implicitly  given  by  Adam  Smith.  The  leading 
idea  in  his  work  is  always  this  —  what  are  the  causes 
which  make  nations  wealthy?  The  attention  is  not  dis- 
tracted by  discussions  on  the  morality,  according  to  any 
assumed  standard  of  making  nations  wealthy,  or  the  right- 
i  Cf.  Mill,  Bk.  V.  2  Sidgwick,  Bk.  III. 


232  PRINCIPLES  OF   POLITICAL   ECONOMY. 

ness  or  goodness  of  dividing  the  wealth  in  certain  propor- 
tions according  to  this  ideal.  Adam  Smith,  it  is  true,  like 
other  writers  on  social  topics,  intersperses  moral  reflections, 
—  but  they  are  essentially  obiter  dicta,  and  might  be  omit- 
ted without  affecting  the  main  argument.  He  indeed 
assumes  that  the  system  of  natural  liberty  in  industrial 
affairs  is  in  harmony  with  the  dictates  of  morality  and 
religion,  but  he  seldom  appeals  to,  and  never  relies  on,  the 
assumption.  Professor  Sidgwick1  justly  says  of  Adam 
Smith  and  his  earlier  successors,  that  so  far  as  they  treated 
political  economy  as  an  art,  they  conceived  its  end  to  be 
that  the  national  production  of  wealth  should  be  as  great 
as  possible,  and  hardly  appear  to  have  entertained  the 
notion  of  aiming  at  the  best  possible  distribution.  But 
his  criticism  is  not  so  just,  which  declares  that  this  limita- 
tion is  not  in  accordance  with  the  ordinary  use  of  the 
wider  term,  economy,  because  that  includes  also  the 
economic  expenditure  of  wealth,  of  which  the  aim  is  to 
make  a  given  amount  of  wealth  as  useful  as  possible. 
Adam  Smith  constantly  refers  to  economic  expenditure  as 
a  principal  factor  in  the  wealth  of  nations ;  witness  his 
treatment  of  the  balance  of  the  annual  produce  and  con- 
sumption,2 and  the  whole  argument  of  his  fifth  book,  in 
which  he  considers  the  most  economic  methods  of  justice, 
education,  defence,  and  other  functions  of  government. 
And  this,  I  take  it,  is  the  ordinary  meaning  of  "  economy  " 
as  regards  expenditure,  and  the  notion  of  maximum  utility 
is  altogether  different.  To  spend  a  given  sum  of  money, 
so  as  to  produce  the  greatest  happiness  to  the  spender, 
cannot  properly  be  called  economic  expenditure ;  this 
refers  to  value  received  for  value  given,  and  not  to  the 
happiness  which  may  follow  on  the  completion  of  the 
bargain.  Still  less  can  we  advance  from  the  individual 
to  the  community,  and  say  that  "the  aim  of  economic  dis- 
tribution is  to  apportion  the  produce  among  the  members 
of  the  community,  so  that  the  greatest  amount  of  utility 
1  Bk.  III.,  Ch.  V.  a  Bk.  IV.,  Ch.  IV. 


DISTRIBUTION.  233 

or  satisfaction  may  be  derived  from  it."  l  For,  in  this  way, 
under  the  cover  of  the  interpretation  of  a  word,  we  beg 
the  question  as  to  the  ideal  scheme  of  distribution.  It 
may,  perhaps,  be  thought  that  the  difference  is  rather 
verbal  than  material,  and  that  practically  the  greatest 
happiness  of  the  greatest  number  will  be  admitted  by  every 
one  as  the  economic  ideal.  But  a  ready  example  shows 
that  it  is  not  so.  Maximum  freedom  is  at  least  as  attrac- 
tive, and  may  lay  claim  to  at  least  equal  authority.  For 
my  own  part,  I  should  not  care  to  regard  equality  of  dis- 
tribution, even  if  it  could  be  shown  to  be  both  practicable 
and  also  productive  of  maximum  happiness,  as  the  ulti- 
mate goal  of  human  progress.  Human  energies,  activities,  ; 
and  ambitions  are  not  to  be  satisfied  with  a  dead  level  of 
placid  content.  The  sadness  of  wisdom  may  be  preferable 
to  the  mirth  of  folly,  and  the  penury  of  independence  to 
the  repletion  of  servitude.  Even  on  the  verbal  question, 
I  submit  that  the  distribution  which  admits  of  the  greatest 
liberty  may  be  more  properly  described  as  economic  than 
that  which  aims  at  greatest  utility.  In  popular  discourse, 
the  laws  of  political  economy  are  still  laws  of  competition 
and  freedom,  and  not  laws  of  happiness  and  content ;  and 
even  utilitarian  economists  still  give  the  first  place  and 
lay  the  most  stress  on  those  laws  which  are  arrived  at 
under  the  assumption  of  a  system  of  national  liberty.2 

But,  as  already  explained,  I  do  not  consider  the  com- 
parison of  conflicting  ethical  ideals,  and  still  less,  the  arbi- 
trary choice  of  one  in  particular,  to  come  within  the 
province  of  political  economy.  In  my  view  it  is  a  positive 
science,  and  as  regards  the  distribution  of  wealth,  we  must 
try  to  discover  the  real  causes  which  have  been  and  still  j 
are,  at  work,  and  deduce  the  consequences.  We  have  to 
explain  the  nature  and  effects  of  the  institution  of  private 
property,  and  describe  and  account  for  various  species  of 
income.  Rents,  wages,  and  profits  are  as  definite  facts  as 

1  Sidgwick's  Principles,  Bk.  III.,  Ch.  I. 

2  Cf.  Sidgwick's  Principles,  Introduction,  Ch.  III. 


234  PRINCIPLES   OF  POLITICAL  ECONOMY. 

any  treated  of  in  the  physical  sciences.  Just  as  land, 
labour,  and  capital  are  the  great  agents  of  production,  so 
the  owners  of  them  are  the  dividers  of  the  produce.  Our 
present  problem  is  to  give  an  account  of  the  positive 
methods  of  division.  In  accordance  with  recent  practice, 
however,  some  attention  will  also  be  given,  at  a  later  stage,1 
to  certain  proposed  schemes  which  are  more  or  less  social- 
istic in  character,  partly  because  opinion  is  itself  an  eco- 
nomic force,  and  partly  because  the  consideration  of  the 
opposite  shows  the  real  meaning  of  existing  institutions, 
and  is  the  best  antidote  to  familiarity. 

I  propose,  in  the  first  place,  to  consider  the  economic 
principles  at  the  root  of  the  institution  of  private  property, 
and  to  point  out,  briefly,  how  they  have  gradually  become 
of  more  and  more  importance  relatively  to  other  principles. 

i  Infra,  Ch.  XV. 


CHAPTER   II. 

THE  INSTITUTION   OF   PRIVATE   PROPERTY. 

§  1.  The  Economic,  as  distinguished  from  the  Legal  and 
Ethical,  Characteristics  of  Private  Property.  In  con- 
cluding his  chapter  on  the  institution  of  property,  Mill 
observes  that  it  is  a  subject  of  which,  for  the  purposes 
of  political  economy,  it  is  indispensable  to  treat,  but  in 
which  we  cannot  usefully  confine  ourselves  to  economical 
considerations.  In  accordance,  however,  with  the  plan 
adopted  throughout  the  present  work,  the  economic  will 
be  carefully  kept  apart  from  other  aspects  of  the  question. 
In  justification  of  this  procedure,  attention  may  be  called, 
in  general  terms,  to  some  of  the  modes  in  which  property 
may  be  considered,  which,  on  this  view,  are  beyond  the 
domain  of  political  economy.  We  shall  better  understand 
what  is  to  be  included  when  we  have  decided  what  is  to 
be  excluded. 

First  of  all,  then,  property  may  be  regarded  from  the 
purely  legal  standpoint,  as  one  of  the  subjects  of  positive 
law.  A  little  reflection  will  show  that  for  adequate  treat- 
ment, in  this  respect,  a  certain  amount  of  specialisation  is 
necessary.  We  may,  for  example,  describe  the  nature  and 
the  kinds  of  property  (e.g.,  real  and  personal),  and  the  dif- 
ferent regulations  affecting  it,  according  to  the  law  of 
England  at  the  present  time.  Such  is  the  mode  of  treat- 
ment adopted  in  legal  text-books  intended  for  the  practi- 
cal purposes  of  education  or  reference.  A  glance  at  any 
standard  law-book  of  this  kind  will  show  at  once  that  the 
economist  cannot  treat  of  property  in  this  way.  We  may 
go  further,  and  trace  the  historical  growth  of  this  law,  a 

235 


23G  PRINCIPLES  OF  POLITICAL  ECONOMY. 

study  in  itself  of  the  greatest  interest,  and  throwing  light 
indirectly  upon  the  social  and  economic  condition  of  the 
people  at  various  times.  Any  one,  however,  who  has  ever 
attempted  to  trace,  for  example,  the  actual  history  of  our 
land  laws,  or  even  that  of  some  small  portion,  will  have  no 
hesitation  in  saying  that  legal  and  economic  history  are 
logically  quite  distinct ;  what  is  of  great  importance  in 
one  department  is  often  irrelevant  to  the  other.  Finally, 
still  keeping  within  the  domain  of  positive  law,  we  may  com- 
pare the  different  laws  of  different  nations  at  various  times, 
and  by  a  combination  of  the  historical  and  comparative 
methods  attempt  to  discover  the  origin  and  trace  the  develop- 
ment of  the  institution  of  private  property  in  general.1  An 
inquiry  of  this  kind  will  no  doubt  assist  in  the  discovery 
of  the  origins  of  economic  history,  but  it  is  one  thing  to 
elucidate  legal  conceptions  and  practices,  and  another  to 
show  their  connection  with  the  economic  condition  of 
mankind  at  certain  stages  of  progress. 

The  transition  in  the  general  treatment  of  property  from 
the  legal  to  the  ethical  point  of  view  is  easy  and  natural. 
The  reason  of  man  is  not  content  with  observing  and  clas- 
sifying the  various  forms  of  positive  law.  The  very  obser- 
vation of  the  differences  that  have  occurred  in  the  past, 
and  the  reforms  which  are  still  taking  place,  leads  to  the 
question :  What  are  the  principles  on  which  the  positive 
law,  as  regards  this  institution  of  private  property,  ouyht 
to  be  based  ?  On  this  problem,  from  the  dawn  of  specula- 
tive thought,  great  labour  has  been  bestowed  by  a  succes- 
sion of  philosophers.  The  only  result,  however,  appears 
to  be  that  the  contrast  between  conflicting  ideals  has  been 
more  sharply  defined.  There  are  some  who  will  say,  with 
Beccaria,2  "  the  right  of  property  is  a  terrible  right  and 

1  For  illustration  of  the  work  done  recently  in  this  direction,  the  gen- 
eral reader  may  compare  the  chapter  in  Blackstone's  Commentaries  (Bk. 
II.,  Ch.  I.),  on  the  origin  of  property,  with  the  corresponding  chapter  in 
Maine's  Ancient  Law  (Ch.  VIII.). 

2  Author  of  the  famous  treatise  on  Crimes  and  Punishments  (Dei  De- 
litti  e  delle  Pene). 


DISTRIBUTION.  237 

may  not  perhaps  be  necessary " ;  and  others,  who  will 
wonder,  with  Bentham,  that  "  so  judicious  a  writer  should 
have  inserted  in  a  work,  dictated  by  the  soundest  philoso- 
phy, a  doubt  subversive  of  the  social  order."  There  can 
be  little  doubt,  in  spite  of  the  present  ascendency  of  utili- 
tarianism, that  men  will  continue  to  dispute  as  to  what 
ought  to  be  the  basis  of  various  positive  laws,  and  their 
opinions  as  to  what  ought  to  be  will,  through  their  repre- 
sentatives, determine  to  some  extent,  at  any  rate,  what  will 
be.  At  the  same  time,  the  distinction  is  not  only  clear, 
but  of  the  greatest  importance.  The  truth  has  been 
admirably  stated  by  Sir  Frederick  Pollock :  "  The  analyt- 
ical branch  of  political  science,  including  the  pure  science 
of  positive  laws,  is  altogether  independent  of  ethical 
theories,  and  that  is  the  definite  scientific  result  which 
we,  in  England,  say  that  the  work  of  the  past  century  has 
given  us."  l 

If,  however,  it  is  granted  that  the  pure  science  of  posi- 
tive laws  is  altogether  independent  of  ethical  theories,  a 
fortiori  political  economy  is  also  independent,  and  inter 
alia,  the  particular  question  of  property  can  be  treated  from 
the  economic  point  of  view  without  any  reference  to  ethics. 
Instead  of  attempting,  then,  to  determine  what  the  laws 
affecting  property  ought  to  be  in  conformity  with  the 
principles  of  reason  or  goodness  or  happiness  or  religion, 
I  shall  take  as  fundamental,  the  organisation  of  society  for 
productive  purposes,  and  I  shall  consider  property  as  one 
of  the  conditions  affecting  production.  I  do  not  maintain 
simply  that  the  positive  law  ought  always  to  regulate  prop- 
erty so  as  to  secure  the  maximum  production  at  the  mini- 
mum cost.  In  my  view  there  is,  and  need  be,  no  question 
of  ought  in  the  matter, — Quot  homines  tot  sententice.  Adam 
Smith  himself  asserts  that  defence  is  of  more  importance 
than  opulence,  and  other  economists  have  for  practical  pur- 
poses constantly  appealed  to  other  principles.  The  factory 
legislation  was  carried  mainly  on  moral  grounds,  though  it 
1  History  of  Politics,  p.  113. 


238  PRINCIPLES  OF  POLITICAL   ECONOMY. 

may  be  supported,  also,  on  the  merely  economic  ground  of 
increased  efficiency.  Similarly,  we  may  defend  poor  re- 
lief as  a  moral  obligation  of  the  nature  of  charity,  or  as  an 
economic  expedient  of  the  nature  of  insurance. 

It  cannot  be  denied  that  there  must  always  be  a  close 
connection  between  production  and  distribution.  To  take 
a  very  definite  case,  many  a  country  has  had  its  productive 
power  altogether  crippled  by  excessive  taxation.  Again, 
the  conditions  under  which  land  is  held  operate  on  the 
methods  of  cultivation.  The  open-field  system,  which 
seems  to  have  been  prevalent  in  some  shape  in  almost 
every  society,  involved  a  peculiar  method  of  production 
intertwined  with  a  peculiar  method  of  distribution.  It 
was  the  break-up  of  the  latter  which  caused,  or  permitted, 
the  break-up  of  the  former.1  And  in  English  industry 
at  the  present  time  production  and  distribution  are  simi- 
larly intertwined,  although  now  the  connecting  links  are 
an  infinite  series  of  little  contractual  bonds  instead  of  a 
few  broad  laws  and  customs. 

From  this  point  of  view  we  do  not  first  take  for  granted 
that  "  the  things  are  there,"  and  then  consider  what  ought 
to  be  done  with  them,  but  we  ask  how  the  things  come  to 
be  there  and  how  they  are  still  to  be  forthcoming.  The 
survey  may  appear  narrow  and  restricted,  but,  such  as  it  is, 
it  has  the  merit  of  being  clear  and  distinct.  We  may  now 
proceed,  after  this  negative  limitation  of  boundaries,  to 
discuss  from  the  positive  standpoint  the  economic  bases  of 
private  property. 

j  i  §  2.  The  Economic  Bases  of  Private  Property  —  and  First, 
of  (a)  Labour.  "  The  foundation  of  the  whole  institution 
\  *>Uu4#bi  \  of  property,"  says  Mill,  "  is  the  right  of  producers  to  what 
they  themselves  have  produced."  More  briefly,  this  may 
be  described  as  (a)  the  labour  basis  of  property.  For  the 
reasons  given  in  the  preceding  section  the  ethical  founda- 
tions and  the  legal  consequences  of  the  right  may  be  passed 

1  Compare  the  general  argument  in  Seebohm's  English  Village  Com- 
munity. 


DISTRIBUTION.  239 

over.  The  vital  consideration  for  the  economist  is  that,  in 
the  words  of  Hobbes,1  "plenty  dependeth  (next  to  God's 
favour)  on  the  labour  and  industry  of  man,"  and  that  this 
labour  and  industry  will  not  be  forthcoming  at  all,  or  only 
in  a  modified  degree,  if  the  fruits  are  not  given  to  those 
who  undergo  the  toil.  As  already  explained  in  connec- 
tion with  variations  in  the  efficiency  of  labour,2  "that 
efficiency  may  be  expected  to  be  great  in  proportion  as 
the  fruits  of  industry  are  insured  to  the  person  exerting 
it;  and  all  social  arrangements  are  conducive  to  useful 
exertion  according  as  they  provide  that  the  reward  of 
every  one  for  his  labour  shall  be  proportioned  as  much  as 
possible  to  the  benefit  which  it  produces."  3  It  is  no  doubt 
perfectly  true  to  say  that  there  never  has  been  any  society 
in  which  this  ideal  has  been  fully  realised,  but  this  only 
shows  that  the  principle  has  been  obstructed  or  counter- 
acted by  opposing  tendencies  of  various  kinds;  and  we 
have  abundant  proof  in  history,  by  what  logicians  call  the 
method  of  concomitant  variations,  that  the  nearer  the  ap- 
proximation, so  much  greater  has  been  the  efficiency  of 
industry.  An  excellent  example  is  afforded  by  Adam 
Smith's 4  account  of  the  progress  in  agriculture  after  the 
fall  of  the  Roman  Empire.  In  proportion  as  the  culti- 
vators of  the  soil  obtained  a  fair  share  in  the  produce,  so 
much  greater  was  the  amount  produced.  Slaves,  coloni, 
metayers,  tenant-farmers,  cultivating  owners,  represent  in 
an  ascending  scale  the  work  done  in  proportion  to  the  re- 
ward secured.  Fear  and  punishment,  public  spirit  and 
religion,  custom  and  habit,  —  all  these  motives  to  industry 
are  subordinate  to  self-interest.  And  it  must  be  observed 
that  self-interest  is  always  at  work  beneath  the  surface, 
even  if  its  action  is  concealed  by  other  dominant  social 
forces.  This  point  will  receive  further  attention  in  a  sub- 
sequent chapter.  In  the  meantime  the  essence  of  the 
principle  involved  may  be  illustrated  by  taking  an  extreme 

1  Leviathan,  Ch.  XXIV.  *  Supra,  Bk.  I.,  Ch.  V.,  §  4. 

8  Mill,  Bk.  I.,  Ch.  VII.,  §  6.  *  Bk.  III.,  Ch.  II. 


240  PRINCIPLES  OF   POLITICAL  ECONOMY. 

case.  Unless  labour  receives  that  mininum  of  the  fruits 
of  industry  which  is  necessary  for  life  and  working  effi- 
ciency, there  will  speedily  be  no  fruits  to  distribute.  Even 
slaves  cannot  work  without  sufficient  maintenance,  clothing, 
and  shelter.  This  transient  possession  of  these  elementary 
goods  may  be  regarded  as  the  lowest  form  of  private  prop- 
erty, which  thus  becomes  an  essential  factor  in  all  produc- 
tion. 

§  3.  The  Economic  Bases  of  Private  Property  —  (£>)  Con- 
tract. It  is  evident,  however,  that  the  more  the  principle  of 
division  of  labour  (in  its  widest  sense)  is  extended,  so 
much  the  more  difficult  does  it  become  to  secure  to  each 
worker  his  share  of  the  complex  result.  Under  the  old 
system  of  cultivation  in  common,  an  actual  division  might 
be  made  of  the  produce,  but  long  before  the  complexity  of 
modern  industry  has  been  reached,  such  a  distribution  in 
kind  of  the  various  products  of  a  community  becomes,  if 
not  impossible,  highly  inconvenient.1  Under  a  money 
economy  the  only  effective  plan  is  to  divide  the  money 
value  of  the  products,  and  division  of  labour  has  never 
attained  any  high  degree  of  development  except  under  a 
system  of  money  payments.  Accordingly,  for  the  simple 
labour  basis  of  property,  we  must  substitute  (5)  freedom 
of  contract.  A  man  is  entitled  to  that  share  of  the  joint 
product  of  industry  which  he  can  obtain  by  fair  contract. 
that  is  to  say,  without  force  or  fraud.  At  this  point,  ac- 
cording to  the  view  here  adopted,  it  is  still  more  necessary 
than  before  to  get  rid  of  the  ethical  conceptions  naturally 
suggested  by  such  terms  as  "  fair  "  and  "  free."  It  is  suffi- 
cient for  our  purpose  to  look  upon  freedom  of  contract  as  the 
form  of  economic  distribution  which  corresponds  to  division 

1  The  "  truck  "  system,  or  payment  in  kind,  is  at  present  prohibited  in 
most  industries  in  the  interests  of  the  labourer.  A  curious  poem,  written 
about  the  time  of  Edward  IV.  (Political  Songs  and  Poems,  Roll's  Series, 
Vol.  II.),  shows  that  the  cloth-makers  in  particular  compelled  the  workers 
to  take  half  of  their  wages  in  merchandise,  and  the  writer  proposes  that 
"  wyrk  folk  be  paid  in  good  moni."  And  a  law  to  this  effect  was  passed 
in  the  fourth  year  of  Edward  IV.  Compare  infra,  Ch.  XII. 


DISTRIBUTION.  241 

of  labour  as  the  form  of  economic  production.  It  is,  of 
course,  conceivable  as  theoretically  possible  that  under  a 
system  of  state  socialism  of  some  kind  every  individual 
might  have  allotted  to  him  by  authority  his  task  and  his 
reward,  and  that  division  of  labour  might  still  be  ramified 
into  the  same  multitude  of  channels  and  capillaries  as  at 
present.  It  is  also  conceivable,  and  much  more  probable, 
that  if  anything  of  the  kind  were  attempted,  division  of 
labour  would  soon  shrivel  up  into  a  few  simple  employments. 
Socialism  of  this  extreme  kind,  however,  may  be  relegated 
to  the  chapter  on  Utopias.  As  industry  is  constituted  at 
present,  its  life-blood  is  freedom  of  contract.  The  exceptions, 
numerous  and  important  as  they  may  at  first  sight  appear, 
only  prove  the  rule.  Many  of  them,  indeed,  in  spite  of 
their  semblance  of  compulsion,  are  intended  not  to  limit 
freedom  of  contract,  but  to  give  it  reality.  Others  have 
been  adopted  on  grounds  professedly  ethical  or  political, 
with  the  full  consciousness  that  to  some  extent  they  may 
be  anti-economic.  But,  on  the  whole,  we  are  justified  in 
regarding  acquisition  by  free  contract  as  the  principal 
economic  title  to  private  property  under  a  complex  system 
of  division  of  labour.  I  pass  over  for  the  present  acquisi- 
tion by  inheritance  or  testamentary  bequest,  as  between 
the  dead  and  the  living  the  idea  of  contract  is  obviously 
inappropriate  ;  whilst  gift  inter  vivos  is  not  only  compara- 
tively rare,  but  may  be  reduced  economically  to  a  form  of 
contract. 

In  substituting  for  the  right  to  enjoy  the  results  of  one's 
own  labour  the  right  to  enjoy  the  results  of  one's  own 
contracts,  it  is  not  implied  that  according  to  any  ethical 
standard  of  justice  the  latter  is  the  exact  equivalent  of  the 
former.  I  repeat  that  ethical  ideals  are  beside  the  ques- 
tion. The  point  is,  that  private  property  resting  on  free- 
dom of  contract  in  a  modern  industrial  organisation,  cor- 
responds to  private  property  resting  on  the  basis  of  labour 
in  a  simple  stage  of  development.  A  man  cannot  consume 
the  eighteenth  part  of  a  multitude  of  pins  or  the  millionth 


242  PRINCIPLES  OF   POLITICAL   ECONOMY. 

part  of  a  big  ironclad  in  the  same  direct  manner  that  he 
can  consume  his  share  of  the  produce  of  the  soil.  He  can 
only  spend  his  money  wages,  and  the  amount  of  these  wages 
is,  with  free  labour,  a  matter  of  stipulation.  The  causes 
which  determine  the  shares  of  the  joint  producers  under 
this  system  will  be  investigated  subsequently ;  at  present 
we  are  only  concerned  with  the  general  principle  of  con- 
tract as  the  basis  of  private  property. 

§  4.  Economic  Bases  of  Private  Property  —  (c)  Capital. 
Hitherto  we  have  regarded  property  as  directly  or  indi- 
rectly connected  with  labour.  But  as  already  explained 
in  the  first  book,  capital  is  an  essential  factor  in  produc- 
tion. Accordingly,  mutatis  mutandis,  the  same  argument 
may  be  applied  to  capital  as  to  labour.  A  man  must  have 
the  right  to  his  savings  or  he  will  not  save ;  more  gener- 
ally, in  order  that  capital  may  be  produced  and  reproduced, 
those  who  produce  it  must  be  entitled  to  the  proceeds,  or 
at  any  rate,  to  such  a  share  as  is  sufficient  to  make  the 
capital  forthcoming.  Thus,  corresponding  to  the  labour 
basis  we  have  (c)  the  capital  basis  of  private  property.  If, 
however,  the  shares  of  the  labourers  who  work  in  combina- 
tion are  determined  by  contract,  so  also  must  be  the 
share  of  the  capitalist.  In  the  concrete,  interest  and  profits 
and  wages  are  determined  in  a  modern  industrial  society 
by  contract  and  not  by  authority.  The  precise  terms  of 
the  contract  depend,  of  course,  upon  certain  general  con- 
ditions, the  most  important  of  which  are  indicated  by  the 
terms  "supply"  and  "demand." 

An  important  practical  deduction  may  be  at  once  derived 
from  this  basis  of  contract.  Even  leaving  out  of  account 
inheritance  and  bequest,  scope  is  given  for  large  accumu- 
lations of  wealth  in  the  hands  of  individuals,  and,  as  a 
consequence,  for  great  inequality  of  fortunes.  It  is  owing 
mainly  to  this  inequality  that  socialists  show  such  bitter 
hostility  to  freedom  of  contract.  They  are  prepared  to 
admit  on  principle  the  justice  of  the  labour  basis,  but  they 
deny  that  contract  is  an  adequate  means  to  attain  the  end, 


DISTRIBUTION.  243 

and  advocate  in  its  place  some  form  of  authority  or  control. 
As  regards  capital,  they  do  not  allow  it  originally  to  stand 
on  the  same  footing  as  labour  as  a  claimant  for  a  share  in 
the  national  produce,  and  they  maintain  that  the  share  it 
obtains  in  the  present  system  is  altogether  exaggerated, 
owing  to  freedom  of  contract.  Apart  altogether  from 
ethical  considerations,  and  taking  up  the  purely  economic 
position  here  adopted,  they  strenuously  deny  that  freedom 
of  contract  is  a  necessary  or  even  an  advantageous  stimu- 
lus to  the  exertion  of  labour  or  the  creation  of  capital. 
The  criticism  of  this  opinion  may  be  deferred ;  it  seemed 
desirable,  however,  to  anticipate  the  discussion  of  details 
by  a  general  statement,  on  account  of  its  bearing  upon  one 
of  the  conditions  precedent  to  freedom  of  contract  — 
namely,  security. 

§  5.  On  Security  as  a  Condition  Precedent  to  Freedom  of 
Contract  and  Private  Property.  The  meaning  and  the  im- 
portance of  security  have  been  admirably  propounded  by 
Bentham.  "  In  order  to  form,"  he  writes,1  "  a  clear  idea 
of  the  whole  extent  which  ought  to  be  given  to  the  prin- 
ciple of  security,  it  is  necessary  to  consider  that  man  is 
not,  like  the  brutes,  limited  to  the  present  time,  either  in 
enjoyment  or  suffering,  but  that  he  is  susceptible  of  pleas- 
ure and  pain  by  anticipation,  and  that  it  is  not  enough  to 
guard  him  against  an  actual  loss,  but  to  guarantee  to  him 
as  much  as  possible  his  possessions  against  future  losses. 
The  idea  of  this  security  must  be  prolonged  to  him 
throughout  the  whole  vista  that  his  imagination  can 
measure.  The  disposition  to  look  forward,  which  has  so 
marked  an  influence  on  the  condition  of  man,  may  be 
called  expectation  —  the  expectation  of  the  future.  .  .  . 
Expectation  is  a  chain  which  unites  our  present  and  our 
future  existence,  and  passes  beyond  ourselves  to  the  gener- 
ations which  follow  us.  ...  The  principle  of  security 
comprehends  the  maintenance  of  all  these  hopes."  "  Prop- 
erty is  only  a  foundation  of  expectation, — the  expectation 
1  Pi-inciples  of  the  Civil  Code,  Ft.  I.,  Ch.  VII. 


244  PRINCIPLES   OF  POLITICAL   ECONOMY. 

of  deriving  certain  advantages  from  the  thing  said  to  be 
possessed.  There  is  no  form  or  colour  or  visible  trace  by 
which  it  is  possible  to  express  the  relation  which  consti- 
tutes property.  To  have  the  object  in  one's  hand,  to  keep 
it,  to  manufacture  it,  to  sell  it,  to  change  its  nature,  to 
employ  it,  all  these  physical  circumstances  do  not  give  the 
idea  of  property.  A  piece  of  cloth  which  is  actually  in 
the  Indies  may  belong  to  us,  whilst  the  dress  which  I  have 
on  may  not  be  mine.  .  .  .  The  idea  of  property  consists  in 
an  established  expectation  —  in  the  possession  of  power  to 
derive  certain  advantages  from  the  object  according  to  the 
nature  of  the  case.  .  .  .  With  respect  to  property,  security 
consists  in  no  shock  or  derangement  being  given  to  the 
expectation  which  has  been  founded  on  the  laws  of  enjoy- 
ing a  certain  portion  of  good." 

Just  as  expectation  is  an  essential  part  of  the  idea  of 
property,  present  enjoyment  being  small  relatively  to 
anticipated  fruition,  so  also  as  regards  contracts  in  general, 
from  the  very  nature  of  the  case  the  fulfilment,  on  one  side 
at  least,  is  deferred.1  In  nearly  all  industrial  contracts 
time  is  an  element  of  the  first  importance.  It  follows  at 
once  that,  without  security,  freedom  of  contract  is  an 
empty  phrase.  Accordingly,  both  directly  through  expec- 
tation and  indirectly  through  the  basis  of  contract,  the 
institution  of  private  property  rests  upon  security. 

Bentham  does  not  attempt  to  conceal  —  on  the  contrary, 
he  brings  out  with  marked  emphasis  —  the  continual  oppo- 
sition between  security  and  equality.  But  in  cases  of  con- 
flict which  are  irreconcilable,  he  has  no  doubt  as  to  which 
ought  to  be  upheld.  "  When  security  and  equality  are  in 
opposition  there  should  be  no  hesitation  ;  equality  should 
give  way.  The  first  is  the  foundation  of  life,  of  subsist- 
ence, of  abundance,  of  happiness ;  everything  depends 
on  it.  Equality  only  produces  a  certain  amount  of  happi- 
ness, besides  which,  though  it  may  be  created,  it  will 
always  be  imperfect ;  if  it  could  exist  for  a  day,  the  revolu- 
1  Cf.  Pollock's  Principles  of  Contract,  p.  6. 


DISTRIBUTION.  245 

tions  of  the  next  day  would  disturb  it.  The  establishment 
of  equality  is  a  chimera ;  the  only  thing  which  can  be  done 
is  to  diminish  inequality." 

Even  more  strongly  is  the  paramount  supremacy  of 
security  enforced  in  the  passage  which  leads  up  to  this 
statement:  "  In  consulting  the  great  principle  of  security, 
what  ought  the  legislator  to  direct  with  regard  to  the 
mass  of  property  which  exists  ?  He  ought  to  maintain  the 
distribution  which  is  actually  established.  This,  under 
the  name  of  justice,  is  with  reason  regarded  as  his  first 
duty ;  it  is  a  general  and  simple  rule,  applicable  to  all 
states,  adapted  to  all  plans,  even  those  which  are  most 
opposed  to  each  other.  There  is  nothing  more  diversified 
than  the  condition  of  property  in  America,  England,  Hun- 
gary, Russia ;  in  the  first  country  the  cultivator  is  proprie- 
tor ;  in  the  second  he  is  farmer;  in  the  third  he  is  attached 
to  the  soil;  in  the  fourth  he  is  a  slave.  Here  the  supreme 
principle  of  security  directs  the  preservation  of  all  these 
disturbances,  how  different  soever  in  their  natures,  and 
though  they  do  not  produce  the  same  amount  of  happiness. 
For  how  shall  a  different  distribution  be  made  without 
taking  from  some  one  what  he  possesses  ?  How  shall  one 
party  be  stripped  without  attacking  the  security  of  all  ? 
When  your  new  distribution  shall  be  disarranged,  which  it 
will  be,  the  day  after  its  establishment,  how  will  you  be 
able  to  avoid  making  a  second?  Why  should  you  not 
correct  this  also?  And  in  the  meantime  what  becomes 
of  security  ?  of  happiness  ?  of  industry  ?  " 

§  6.  Criticism  of  the  Vieivs  of  Bentham.  I  have  given  at 
some  length  in  the  preceding  section  the  opinions  of  Ben- 
tham on  security,  because  by  no  writer  with  whom  I  am 
acquainted  is  the  principle  more  clearly  stated,  and  for  the 
present  it  is  with  great  principles  only  that  we  are  con- 
cerned. The  last  passage  quoted,  however,  would  seem 
to  imply  that  even  slavery  and  serfdom,  once  definitely 
established,  are  not  to  be  disturbed  on  account  of  the  shock 
to  securit}^.  The  violent  conflict  of  such  a  doctrine  with 


246  PRINCIPLES   OF   POLITICAL   ECONOMY. 

common  sense  morality  is  too  obvious  to  call  for  remark, 
but  taking,  as  before,  a  purely  economic  standpoint,  the 
position  in  this  extreme  form  seems  untenable.  For,  after 
all,  security  itself  is  only  a  means  to  an  end,  and  economi- 
cally that  end,  in  the  view  here  taken,  is  the  efficiency  of 
the  productive  organisation  of  society.  But  if  it  is  admitted 
that  slavery  is  the  least  efficient  of  all  kinds  of  labour, 
surely  it  would  be  better  to  endure  the  momentary  shock 
of  disturbance  than  to  suffer  from  the  continuance  of  the 
system. 

In  the  same  way,  as  regards  the  fulfilment  of  contracts, 
it  is  easy  to  conceive  of  cases  in  which  it  would  be  not 
only  morally  wrong  (according  to  common  sense),  but 
economically  inexpedient,  to  enforce  the  obligation.  Free- 
dom of  contract  is,  like  security,  a  means  only  and  not  an 
end  in  itself ;  that  is  to  say,  industry  is  not  organised  to 
promote  freedom  of  contract,  but  freedom  of  contract  is 
encouraged  to  promote  industry. 

To  a  certain  extent,  the  force  of  these  objections  is 
admitted  by  Bentham  himself.  Such  a  "  civil  inequality  " 
as  slavery  he  allows  ought  to  be  corrected,  but  in  the 
process  attention  ought  to  be  paid  to  the  rights  of  prop- 
erty, and  the  operation  should  be  gradual.  He  also  gives 
examples  of  "sacrifices  of  security  to  security,"  e.g.,  for 
defence  against  internal  or  external  enemies,  or  for  the 
prevention  of  physical  calamities.  For  such  purposes  the 
state  must  take  from  some  to  give  to  others ;  and,  logically, 
taxation  is  a  violation  of  security.  But  then,  "all  gov- 
ernment is  only  a  tissue  of  sacrifices ;  and  the  best  govern- 
ment is  that  in  which  the  value  of  these  sacrifices  is 
reduced  to  the  smallest  amount." 1 

To  resume :  Bentham  is  right  in  insisting  on  the  abso- 
lute importance  of  security  as  an  essential  condition  of 
modern  industrial  organisation,  and  his  teaching  deserves 
special  attention  at  the  present  time.  But  he  is  wrong  in 

1  This  statement  is  obviously  too  extreme.  See  the  "social  dividend " 
theory  of  taxation,  Bk.  V. 


DISTRIBUTION.  247 

assuming,  as  he  often  does,  that  security  is  not  so  much  a 
condition  as  an  efficient  cause  of  industry. 

He  is  wrong,  too,  in  asserting  that  security  is  entirely  the 
work  of  the  laws.  Customs  of  various  kinds,  which  can 
only  b}^^_ficlioji^be_de^cjibe^_as_Jaws,  may  suffice  in 
early  stages  of  society  to  afford  a  high  degree  of  security, 
whilst  in  most  highly  developed  societies,  the  principal 
basis  of  security  is  rather  good  faith  than  the  fear  of  legal 
sanctions.  "  It  is  the  confidence  reposed  and  deserved  by 
the  many  which  affords  facilities  for  the  bad  faith  of  the 
few,  so  that,  if  colossal  examples  of  dishonesty  occur,  there 
is  no  surer  conclusion  than  that  scrupulous  honesty  is  dis- 
played in  the  average  of  the  transactions,  which  in  the 
particular  case  have  supplied  the  delinquent  with  his 
opportunity." l  The  law  is  indeed  prepared  to  enforce  the 
performance  of  contracts  in  case  of  need,  but  if  every  con- 
tract required  the  intervention  of  the  law,  there  would  be 
an  end  of  contract  and  security. 

The  principle  of  security  will  demand  further  examina- 
tion, in  connection  with  compensation  for  the  disturbance 
of  vested  interests. 

§  7.  On  (a?)  Prescription  as  an  Economic  Basis  of  Prop- 
erty. The  legal  principle  of  (c?)  prescription,  namely,  that 
undisturbed  possession  for  a  certain  term  of  years  shall 
suffice  to  establish  a  valid  title,  may  also  be  supported  on 
purely  economic  grounds.  In  the  first  place,  there  is  se- 
curity, which  would  be  impossible  if  there  were  no  finis 
lit ium,  and  if  a  person  were  always  liable  to  be  challenged 
to  prove  his  claim  over  an  indefinite  period.  Next,  there  is 
the  series  of  contracts  to  -which  the  actual  possession  may 
have  given  rise,  and  which  could  not  be  upset  without 
great  disturbance  to  purely  innocent  parties.  Finally, 
there  is  the  actual  waste  of  money  which  would  be  in- 
volved in  legal  and  other  expenses  connected  with  the 
change  of  ownership. 

1  Maine's  Ancient  Laic,  Ch.  IX.,  p.  306.  The  whole  of  the  chapter  on 
the  history  c2  contract  is  highly  instructive,  as  regards  the  subject  of  the 
present  chapter. 


248  PRINCIPLES   OF   POLITICAL   ECONOMY. 

The  principle  of  prescription  is  of  interest,  not  so  much 
on  account  of  the  frequency  or  importance  of  its  applica- 
tion in  practice,  but  because  its  economic  character  is 
specially  prominent.  The  conversion  of  a  bad  title  into  a 
good  one  by  the  mere  lapse  of  time  throws  a  strong  light 
on  the  nature  of  security.  This  is  well  illustrated  by  the 
case  of  the  appropriation  of  land  and  other  natural  agents, 
a  case  which,  both  in  view  of  recent  proposals,  and  as  an 
example  of  principles,  deserves  careful  examination.  It 
seems  best,  however,  to  treat  in  the  first  place  of  Bequest 
and  Inheritance. 


CHAPTER   III. 

BEQUEST   ASD    INHERITANCE. 

§  1.  General  View  of  Bequest  and  Inheritance.  It  is 
obvious,  on  simple  inspection,  that  bequest  and  inheritance 
involve  conceptions  that  are  logically  opposed.  If  bequest 
is  altogether  unrestricted,  a  person  can  distribute  his  prop- 
erty after  death  as  freely  as  he  can  during  life ;  he  may 
cut  off  his  children  with  a  shilling,  and  leave  the  rest  "  to 
build  a  house  for  fools  or  mad " ;  the  only  condition  he 
must  obey  is  to  declare  his  intentions  in  due  form  before 
it  is  too  late.  If,  on  the  other  hand,  certain  rights  of 
inheritance  are  allowed,  e.g.,  as  regards  certain  forms  of 
property,  such  as  land,  or  in  favour  of  certain  persons, 
such  as  wife  or  children,  freedom  of  bequest  is  so  far 
restricted.  In  the  progress  of  society,  regarded  historically, 
the  general  movement  has  been  to  extend  bequest  at  the 
expense  of  inheritance.  "  It  is  doubtful,"  says  Maine,1 
"  whether  a  true  power  of  testation  was  known  to  any 
original  society  except  the  Roman."  The  causes  of  this 
movement  are  highly  complex  and  varied ;  religious,  ethi- 
cal, and  legal,  as  well  as  economic.  I  shall,  in  accordance 
with  the  plan  followed  throughout,  only  discuss  the  latter. 
I  may  remark,  however,  that  the  great  differences  which 
at  present  prevail  in  the  laws  2  of  different  nations,  equally 
in  the  front  rank  of  civilisation,  show  that  the  economic 
have  been  largely  influenced  by  other  elements.  I  may 

1  On  the  general  question,  cf.  Ancient  Law,  Chs.  VI.  and  VII. 

2  Compare  the  laws  of  France  and  England,  and  even  those  of  England 
and  Scotland. 

240 


250  PRINCIPLES  OF  POLITICAL   ECONOMY. 

also  take  the  opportunity  of  again  insisting  on  the  position 
explained  in  the  introduction  to  this  work,  that  because 
it  is  convenient  for  scientific  purposes  to  isolate  as  far  as 
possible  the  economic  phenomena,  it  does  not  follow  that 
they  can  be  so  isolated  in  practice,  and  still  less,  that  they 
ought  to  be  so  isolated.  No  one  would  propose  that  the 
laws  of  bequest  and  inheritance  should  be  framed  entirely 
on  economic  considerations,  especially  with  the  somewhat 
narrow  meaning  of  the  term  here  adopted.  It  is  enough 
for  the  present  purpose  if  it  be  admitted  that  the  economic 
elements  are  of  sufficient  importance  to  be  studied  sepa- 
rately ;  the  rest  may  be  left  to  the  moralist  and  the  jurist.1 
I  proceed,  then,  to  examine  the  principles  of  inheritance 
and  bequest  from  the  point  of  view  of  their  connection 
with  the  productive  organisation  of  society,  and,  as  in  the 
preceding  chapter,  I  shall,  first  of  all,  take  the  modern 
industrial  system. 

§  2.  Inheritance.  Mill  boldly  affirms  that  the  right  of 
inheritance,  as  distinguished  from  bequest,  does  not  form 
part  of  the  idea  of  private  property.  He  justifies  the 
opinion  by  reference  to  the  bases  of  this  institution  exam- 
ined in  the  last  chapter ;  the  right  to  inherit  the  wealth  of 
a  dead  person  cannot  be  traced  to  the  labour  or  the  saving 
or  the  contracts  of  the  heir ;  it  is  the  dead,  and  not  the 
living,  who  has  accumulated  the  wealth  by  working  and 
thrift  and  good  bargains.  The  state  as  the  partner  in  the 
business,  who  provides  the  field  of  action  and  affords  secu- 
rity and  protection,  might  have  a  just  economic  claim,  but 
mere  blood  relationship  —  the  mere  accident  of  birth  —  is 
supposed  to  give  no  right,  in  accordance  with  fundamental 
principles.  The  only  principle  which  on  this  view  might 
be  advanced  as  at  all  plausible,  is  that  of  prescription. 
But  here  the  reply  is  obvious :  there  can  be  no  prescription 
of  institutions.  If  such  a  thing  were  possible,  all  reform 


i 


For  an  excellent  analysis  of  all  the  most  important  principles  involved, 
and  their  variations,  the  reader  may  consult  Professor  Sidgwick's  Ele- 
ments of  Politics,  Ch.  VII. 


DISTRIBUTION.  251 

would  be  impossible.  And  we  may  go  further,  and  say 
that  at  the  present  time  the  argument  from  antiquity  has 
been  turned  round ;  under  the  influence  of  the  theory  of 
evolution,  and  the  contemplation  of  modern  progress,  we 
have  begun  to  look  upon  the  wisdom  of  our  ancestors  as 
foolishness ;  at  the  least,  we  are  inclined  to  maintain  that 
in  ancient  times  the  conditions,  both  moral  and  material, 
were  different,  and  that  an  institution  that  was  beneficial 
under  certain  conditions  is  not  likely  to  be  so  when  the 
conditions  have  changed.  Every  one  admits  that  any  law 
may  be  changed ;  the  question  may  be  one  of  expediency 
or  morality  or  economy,  but  the  reverence  for  the  past,  as 
such,  is  now  not  part  of  religion,  but  of  superstition. 

It  is  worth  noting  also,  that,  in  this  particular  case  of 
inheritance,  the  ancient  conditions  were  certainly  different. 
The  family  was  in  general  the  real  unit  of  society,  and  the 
family  was  regarded  as  a  corporation  that  never  dies ; 1  if 
extinction  was  threatened  by  natural  causes,  artificial  rep- 
aration was  resorted  to  in  the  form  of  adoption.  Accord- 
ingly, there  was  no  room  for  bequest  so  long  as  this  was 
the  ruling  idea,  and  after  bequest  was  instituted  it  was  for 
a  long  period  used,  not  for  the  purpose  of  disinheriting 
children,  but  to  provide  for  those  who,  technically  or 
legally,  were  no  longer  members  of  the  family.  But  one 
of  the  most  characteristic  features  of  economic  progress 
has  been  the  disintegration  of  the  family;  freedom  of 
the  individual  has  displaced  the  bonds  of  blood  relation- 
ship, at  any  rate  to  a  considerable  extent. 

Still,  it  may  be  possible  to  justify  inheritance  on  subor- 
dinate grounds,  even  if  it  cannot  be  deduced  from  the 
fundamental  principles  of  property.  The  grounds  com- 
monly advanced  are:  (1)  The  state  should  do  what  the 
owner  would  have  done.  This  follows  from  the  position 
that  bequest  is  assumed  to  be  unrestricted,  —  as  being  part 
of  the  general  idea  of  property, — and  intestacy  is  a  mere 
accident.  In  Mill's  treatment  of  this  argument  we  have  a 
1  Cf.  Maine's  Ancient  Law. 


252  PRINCIPLES   OF   POLITICAL   ECONOMY. 

good  example  of  the  confusion  that  arises  from  the  intro- 
duction of  ethical  conceptions.  He  maintains  that  since 
only  general  rules  can  be  laid  down  by  the  state,  —  since 
it  is  impossible  to  discover  the  intentions  of  particular  in- 
dividuals after  death, — the  state  should  frame  its  rules  by 
considering  what  the  owner  ought  to  have  done,  that 
is  to  say,  according  to  some  ideal  of  duty.  But  this  is  to 
turn  the  point  of  the  argument.  Take,  for  example,  the 
law  of  primogeniture  :  on  the  argument  usually  advanced, 
the  law  may  be  defended  on  the  simple  ground  that  it  is 
founded  upon  a  custom  actually  prevalent  as  regards  es- 
tates in  land,  and  yet  at  the  same  time  it  may  be  argued, 
on  moral  grounds,  that  the  custom  is  bad.  The  essential 
point  is  simply,  what  is  the  custom?  (2)  The  second 
argument  commonly  advanced  in  favour  of  inheritance  is 
founded  on  the  supposed  claims  of  the  relatives.  It  is  sup- 
ported by  an  appeal  to  the  general  principle  of  security 
and  the  necessity  or  expediency  of  fulfilling  just  expecta- 
tions. But  then,  as  before,  the  difficulty  arises  as  to  the 
proper  interpretation  of  justice,  and  we  are  again  forced  to 
wander  in  search  of  ethical  ideals.  As  the  result  of  his 
quest  (and  guided  for  the  most  part  by  Bentham),  Mill 
arrives  at  a  rather  startling  conclusion.  He  would  give 
children  the  right  to  such  a  portion  of  wealth  as  would 
give  them  a  fair  start  in  the  world,  and  the  amount  would 
be  determined  on  Stoic  rather  than  on  Epicurean  princi- 
ples. Illegitimate  children  are  to  be  placed  on  the  same 
footing  as  legitimate.  Collaterals  are  to  have  no  claim, 
and  the  surplus,  after  the  children  are  provided  for,  is 
to  go  to  the  state.  I  do  not  propose  to  discuss  this  posi- 
tion on  ethical  grounds,  although  it  does  not  seem  very 
difficult  to  attack.  There  is  no  need  to  appeal  to  ethics ; 
the  appeal  to  consistency  is  sufficient.  Mill  asserts  that 
the  liberty  of  bequest,  which  on  principle  he  admits,  takes 
away  any  injustice  from  these  limitations  on  inheritance. 
It  is  due  to  the  parents  to  give  them  the  right  of  leaving 
the  rest  of  their  property  to  the  children,  if  they  please, 


DISTRIBUTION.  253 

but  it  is  not  due  to  the  children  to  have  the  right  to  make 
a  claim.  But  if  bequest  is  allowed,  surely  the  principles 
of  inheritance  in  case  of  intestacy  ought  to  be  decided  ac- 
cording to  the  customs  prevalent  in  the  society,  and  the 
sense  of  public  spirit  will  have  to  be  much  more  highly 
developed  before  it  becomes  a  general  practice  to  leave 
property  to  the  state  in  preference  to  children,  or  even 
remote  relatives.  At  present,  if  a  man  left  his  fortune 
towards  the  payment  of  the  national  debt,  his  will  would 
probably  be  contested,  on  the  ground  that  he  was  of  un- 
sound mind.  The  only  tenable  conclusion  thus  appears 
to  be  that,  if  freedom  of  bequest  is  allowed,  we  must  also 
allow  inheritance  on  recognised  customary  lines  in  the  ac- 
cidental case  of  intestacy.  But  then  the  question  arises : 
Are  no  limitations  to  be  placed  upon  freedom  of  bequest, 
and  is  freedom  of  bequest  an  essential  part  of  the  institu- 
tion of  private  property?  In  the  following  section  an 
attempt  is  made  to  answer  this  question  on  economic 
grounds,  which  may,  of  course,  be  supplemented  or  contro- 
verted by  other  considerations. 

§  3.  Bequest.  The  fundamental  economic  reason  for 
allowing  freedom  of  bequest  as  the  general  principle  is 
found  in  the  stimulus  that  is  given  to  labour  and  saving. 
People  will  not  toil  and  accumulate  wealth  for  the  pur- 
pose of  enriching  the  state.  The  attempt  to  impose  suc- 
cession duties  approaching  a  hundred  per  cent  would  be 
the  greatest  possible  encouragement  to  wasteful  extrava- 
gance.1 It  would  be  especially  injurious  where  production 
is  carried  on  on  a  large  scale.  Or,  as  usually  happens 
with  excesses  of  governmental  interference,  if  an  enact- 
ment of  this  kind  was  not  mischievous,  it  would  be  useless. 
It  would  be  evaded  by  gift  under  certain  conditions,  and 
we  may  be  certain  that  trusts  and  legal  fictions  would  give 
effect  to  the  common  sense  morality  or  prevailing  custom 
of  the  country. 

1  Compare  the  treatment  of  graduated  taxation,  Art.  "  Taxation,"  En- 
cyclopaedia Britannica. 


254  PRINCIPLES  OF   POLITICAL   ECONOMY 

But,  although  the  general  principle  is  admitted,  it  is 
quite  possible  that  certain  limitations  or  exceptions  may 
be  justified  on  purely  economic  grounds.  Some  of  these 
are  indeed  obvious,  and  have  been  verified  by  experience. 

(1)  The  interests  of  the  public  must  not  be  sacrificed 
to  satisfy  the  caprices  of  individuals.     Thus,  to  lay  down 
the  order  of  descent  for  an  indefinite  period,  as  in  entails 
in  the  strictest  sense  of  the   term,  is  plainly  against  the 
public    interest.1      Nor    can   such   excessive    freedom   be 
justified  by  an  appeal  to  the  stimulus  of  accumulation;  a 
man's  interest  in  his  descendants  of  the    nth  degree  be- 
comes smaller  as  n  becomes  larger. 

(2)  Similarly,  it  may  be  advisable  to  limit  bequests  to 
corporations  of  various  kinds.    Adam  Smith  was  of  opinion 
that,  on  the  whole,  endowments  given  for  education  had 
not  been  beneficial.     At  any  rate,  it  will  be  admitted  that 
after  the  lapse  of  a  certain  time  the  state  should  have  the 
right  of   revision.     Again,  special   restraints  may  be  im- 
posed on  the  bequest  of  certain  kinds  of  property  to  cor- 
porations.    Take,  for  instance,  the  case  of  land,  which  is 
obviously  limited.     It  is  said  that  at  one  time  the  mediae- 
val church  held  more  than  a  third  of  the  land  of  England, 
and  unless  prevented  by  legislation  the  process  of  absorp- 
tion might  have  continued  indefinitely. 

(3)  These  exceptions  are  obvious,  but  in  most  countries 
bequest  is  limited  in  favour  of  the  children.     In  France, 
as  is  well  known,  the   parental   power   of   testamentary 
disposition  over  property  is  limited  to  a  part  equal  to  one 
child's  share,  the  remainder  being  divided  equally  among 
the  children.     Apart  from  special  objections  to  the  incon- 
venience of  dividing  certain  forms  of  property,  especially 
land,  there  are  objections  derived  from  general  economic 
principles.     The  limitation  will  not  probably  much  affect 
the  stimulus  to  accumulation  on  the  part  of  the  parents, 
but  it  may  lessen  the  incentives  to  industry  on  the  part  of 
the  children.     As  Dr.  Johnson  tersely  remarked,  the  great 

1  The  special  arguments  are  given  below. 


DISTRIBUTION.  255 

advantage  of  primogeniture  is  that  it  makes  but  one  fool 
in  a  family.  Another  objection  is  that  undue  limits  are 
placed  on  parental  control.  It  might  well  happen  that  one 
son,  owing  to  special  aptitudes  for  some  business  or  pro- 
fession, might  with  advantage  obtain  a  larger  share  than 
the  others,  or,  conversely,  if  one  had  succeeded  and  another 
had  failed,  an  adjustment  might  be  made  on  the  death  of 
the  parent.  The  example  of  France  also  serves  to  show 
that  the  limitation  in  question  may  lead  to  an  injurious 
restraint  of  population.  On  the  other  hand,  under  certain 
conditions  such  restraint  might  be  desirable,  and  it  is  pos- 
sible that  the  idea  of  providing  a  small  competency  for  the 
children  may  lead  to  a  rise  in  the  standard  of  comfort. 

Usually,  however,  the  limitation  is  defended,  on  the 
ground  that  it  leads  to  greater  equality  in  the  distribution 
of  wealth.  There  can  be  little  doubt  that  such  must  be 
the  tendency,  and,  on  utilitarian  principles,  this  argument 
would  have  much  weight.  For  the  reasons  given  in  the 
preceding  chapters,  I  cannot  regard  equality  as  of  such 
economic  importance.  Taking,  as  I  have  done,  the  pro- 
ductive organisation  of  society  as  the  guiding  principle  of 
distribution,  freedom  must  take  the  place  of  happiness  ;  and 
freedom  is  likely  to  cause  a  certain  degree  of  inequality. 

Mill's  desire  to  treat  the  question  in  a  broad,  philosophical 
manner,  and  not  to  confine  himself  to  purely  economic  con- 
siderations, has  again  led  him  into  a  fantastical  conclusion. 
He  approves  of  the  promotion  of  equality  contemplated  by 
the  French  law,  but  he  objects  to  the  means.  Accordingly, 
he  proposes  that  the  state  should  limit  directly  the  amount 
received  by  any  person,  including  the  children,  either  by 
bequest  or  inheritance.  But,  in  the  present  constitution 
of  society,  this  is  to  abandon  altogether  the  right  of  free- 
dom of  bequest,  and,  but  for  the  eminence  of  the  writer 
who  makes  the  proposal,  it  is  hardly  worth  serious  con- 
sideration. 


CHAPTER   IV. 

PROPERTY   IN   LAND   AND  COMPENSATION    FOR    EXPROPRI- 
ATION. 

§  1.  MilVs  Vieivs  on  Property  in  Land.  Opinion,  it  has 
been  observed,  in  social,  political,  and  economic  affairs,  is 
an  active  force,  and  public  opinion  on  various  questions 
connected  with  land  has  been  formed,  to  a  great  extent,  on 
the  principles  laid  down  in  Mill's  treatise.  To  Mill,  for 
example,  may  be  traced  the  germs  of  various  proposals  for 
land  nationalisation,  for  the  establishment  of  peasant  pro- 
prietors, for  access  to  mountains,  and  for  dealing  with 
Irish  land  by  peculiar  methods. 

It  is  true  that  Mill  introduces  many  qualifications  which, 
in  the  process  of  popular  simplification,  have  been  allowed 
to  drop  out  of  sight,  but  even  with  these  qualifications 
some  of  his  views  appear  to  require  modification. 

His  argument  runs  as  follows.  Since  the  fundamental 
conception  of  property  is  the  right  to  enjoy  the  fruits  of 
,  one's  own  labour  and  saving,  this  cannot  apply  directly  to 
land  considered  as  the  raw  material  of  the  earth ;  land  as 
such  is  neither  made  nor  saved.  Mill,  as  usual,  lays  stress 
on  the  moral  aspects  of  the  question,  and  appeals  to 
natural  ideas  of  justice.  His  position,  however,  may  be 
best  maintained  on  purely  economic  grounds.  So  far  as 
the  "  original  and  indestructible  "  powers  of  the  soil  are 
concerned,  the  economic  stimulus  is  not  required  for  their 
creation  or  preservation,  they  are  so  far  different  from 
other  forms  of  capital. 

But  we  now  pass  to  an  important  distinction.  Mill 
points  out  that  the  use  of  land  must  be  exclusive  for  the 

256 


DISTRIBUTION.  257 

time,  a  position  which  is  supported  on  purely  economic 
grounds.  Exclusive  use,  however,  does  not  necessarily 
imply  private  ownership.  We  might  have  periodical  or 
even  annual  division,  either  by  village  communities  or 
by  the  state,  or  the  state  might  be  the  universal  landlord, 
with  tenants  holding  from  it  under  various  conditions. 
These  methods,  as  will  be  shown  presently,  have  all  been 
more  or  less  exemplified  in  different  stages  of  develop- 
ment ;  private  property  in  land,  as  we  understand  it,  is  of 
comparatively  modern  origin.  Whether  we  consider  land 
for  agricultural  or  building  purposes,  some  kind  of  exclu- 
siveness  is  necessary ;  but  the  essential  point  is  that  occu- 
pation is  not  ownership.  So  far,  then,  Mill  seems  to 
countenance  the  extreme  view  that  private  property  in 
land  ought  to  be  abolished. 

At  once,  however,  he  introduces  important  qualifications. 
Though  land  in  itself,  he  proceeds,  is  not  the  product  of 
industry,  most  of  its  valuable  qualities  are,  and,  therefore, 
so  far  land  must  be  placed  on  the  same  footing  as  other 
forms  of  property.  Some  of  these  qualities  have  only  been 
attained  by  the  labour  of  generations,  as,  for  example,  the  *** 
drainage  of  fens,  the  embankment  and  diversion  of  rivers, 
the  clearance  of  forests,  and  the  gradual  improvement  of 
the  soil  itself  by  good  tillage.  So  far  the  land  is  the  result  .  .fl* 
of  labour  and  of  saving,  and  we  may  even  regard  it,  with- 
out much  straining  of  language,  as  manufactured. 

The  logical  conclusion  then  is  reached,  that,  so  far  as  the 
original  qualities  are  concerned,  property  in  land  is  not 
justified  by  the  fundamental  economic  bases,  but  as  regards 
the  derivative  qualities,  the  same  principles  are  applicable 
as  to  movables. 

But  the  next  stage  in  the  argument  does  not  attain  the 
same  degree  of  cogency.  "  These  are  the  reasons,"  Mill 
continues,  "  which  form  the  justification  in  an  economical 
point  of  view  of  property  in  land.  It  is  seen  that  they  are 
only  valid  in  so  far  as  the  proprietor  of  land  is  its  im- 
prover. Whenever  in  any  country  the  proprietor,  gener- 


258  PRINCIPLES  OF  POLITICAL   ECONOMY. 

ally  speaking,  ceases  to  be  the  improver,  political  economy 
has  nothing  to  say  in  defence  of  landed  property  as  there 
established.  In  no  sound  theory  of  private  property  was 
it  ever  contemplated  that  the  proprietor  of  land  should  be 
merely  a  sinecurist  quartered  on  it." 1  This  position  ap- 
pears weak,  both  logically  and  practically.  Why  should 
the  owner  of  any  form  of  capital  necessarily  be  the  user  of 
it  ?  It  has  been  admitted  that  most  of  the  valuable  quali- 
ties of  land  are  capital  in  the  economic  sense,  and  it  is 
certain  that  these  qualities  cannot  be  detached  from  such 
natural  and  original  qualities  as  situation. 

On  all  kinds  of  capital  interest  is  received,  and  for  the 
interest  as  such  —  as  distinct  from  the  wages  of  superin- 
tendence and  other  elements  in  profits  —  the  owner  does 
nothing.  Then  why  should  the  owner  of  land,  simply 
because  he  ceases  to  improve  it  himself,  incur  particular 
censure  ?  From  the  nature  of  the  case,  there  are  limits  in 
any  given  stage  of  agricultural  practice  to  the  improve- 
ments that  can  be  made ;  there  are  even  cases  on  record 
in  which  improvements  have  been  carried  too  far.  Use 
and  ownership  can  be  separated  as  regards  land,  just 
as  in  banks,  railways,  and  all  kinds  of  commercial  under- 
takings. The  tendency  of  modern  industry  has  been  to 
separate  more  and  more  interest,  as  such,  from  wages  and 
profits,  as  is  shown  by  the  increasing  amount  of  borrowed 
capital  in  the  hands  of  employers. 

The  weakness  of  Mill's  position  is,  however,  best  ex- 
posed by  considering  his  views  on  compensation.  "The 
claim  of  the  land-owners  to  the  land  is  altogether  subordi- 
nate to  the  general  policy  of  the  state.  The  principle  of 
property  gives  them  no  right  to  the  land,  but  only  a  right 
to  compensation  for  whatever  portion  of  their  interest  in 
the  land  it  may  be  the  policy  of  the  state  to  deprive  them 
of.  To  that,  their  claim  is  indefeasible.  It  is  due  to  land- 
owners and  to  owners  of  any  property  whatever,  recog- 
nised as  such  by  the  state,  that  they  should  not  be  dispos- 
i  Bk.  II.,  Ch.  II.,  §  6. 


DISTRIBUTION.  259 

sessed  of  it  without  receiving  its  pecuniary  value,  or  an 
annual  income  equal  to  what  they  derived.  This  is  due 
to  the  general  principles  on  which  property  rests.  If  the 
land  was  bought  with  the  produce  of  the  labour  and  absti- 
nence of  themselves  or  their  ancestors,  compensation  is 
due  to  them  on  that  ground  ;  even  if,  otherwise,  it  is  still 
due  on  the  ground  of  prescription.  Nor  can  it  ever  be 
necessary  for  accomplishing  an  object,  by  which  the  com- 
munity altogether  will  gain,  that  a  particular  portion  of 
the  community  should  be  immolated.  When  the  property 
is  of  a  kind  to  which  peculiar  affections  attach  themselves, 
the  compensation  ought  to  exceed  a  bare  pecuniary  equiva- 
lent." This  principle  of  compensation,  it  will  be  seen,  is 
stated  with  such  emphasis  that  a  pretium  affectionis  is  to 
be  awarded  in  cases  of  expropriation.  It  follows,  at  once, 
that  the  state  cannot  hope  to  make  a  pecuniary  gain  by  a 
transaction  of  this  kind.  Its  present  value  must  include 
the  value  of  any  prospective  rise,  and  for  the  pretium  affec- 
t  i<> /i  is  there  can  be  no  return  whatever.  Accordingly,  we 
are  forced  to  make  a  long  descent  from  the  lofty  position 
at  first  assumed,  and  are  obliged  to  discuss  the  relative 
merits  of  state  management  and  that  of  private  ownership. 
Deferring,  then,  for  the  present,  the  examination  of  the 
principles  of  expropriation  and  compensation,  which  are 
not  altogether  so  simple  and  obvious  as  Mill  appears  to 
think,  I  propose  to  point  out  the  economic  advantages 
of  private  ownership  and  the  disadvantages  of  state  man- 
agement. 

§  2.  Economic  Advantages  of  Private  Property  in  Land. 
The  case  we  have  to  consider  is  not  that  of  cultivating 
ownership,  but  that  of  the  landlord  and  tenant.  The  prin- 
cipal example  of  the  former,  namely,  peasant  proprietor- 
ship, has  already  been  examined  critically,  and  the  peculiar 
merits  and  demerits  of  large  estates  will  be  treated  later. 

The  first  advantage  of  the  landlord  and  tenant  system, 
as  contrasted  with  state  control  of  some  kind,  is  that 
land  —  I  am  speaking  now  only  of  agricultural  land  — 


260  PRINCIPLES   OF   POLITICAL   ECONOMY. 

comes  under  the  influence  of  the  competition  of  individ- 
uals. It  is  for  the  interest  of  the  land-owner  to  obtain  the 
highest  rent  and  the  best  treatment  of  his  land,  and,  speak- 
ing broadly,  those  will  offer  most  for  it  who  can  make  the 
best  use  of  it.  The  agriculture  of  Great  Britain  is  a  good 
example  of  the  excellence  of  this  system.  A  land-owner 
almost  invariably  makes  more  out  of  his  land  by  letting  it 
to  others  than  by  cultivating  it  himself.  The  objections  to 
State  management  are  obvious  and  to  my  mind  conclusive. 
The  officials  —  the  factors  of  the  government — must  either 
have  the  power  at  present  possessed  by  the  land-owners, 
with  all  its  liability  to  jobbery  and  caprice,  or  else  they 
must  be  bound  down  by  most  rigid  rules  of  routine  ;  it  is 
difficult  to  say  which  evil  would  be  the  greater. 

If,  on  the  other  hand,  an  attempt  is  made  to  get  rid  of 
the  tenants  by  making  them  all  owners,  great  difficulties 
are  at  once  suggested.  There  is  the  danger  of  mortgages, 
in  which  case  the  real  landlord  is  the  Jew,  and  more 
is  paid  by  way  of  interest  than  would  have  been  paid  in 
rent.  If  mortgages  are  forbidden  by  law,  experience  shows 
that  the  result  will  be  higher  usury,  on  account  of  the  bad 
security.  If  the  tenant  is  fortunate  enough  to  be  able  to 
purchase  outright  without  borrowing,  he  is  forced  to  take 
a  much  smaller  farm ;  the  capital  that  he  might  have  de- 
voted to  stock,  and  on  which  he  would  have  earned  profits, 
can  now  only  yield  a  very  low  rate  of  interest. 

Mill  himself  insists  on  the  importance  of  improve- 
ments, and  approves  of  ownership  so  long  as  the  owner 
is  an  improver.  But  improvements  of  a  very  arduous  kind, 
that  involve  considerable  expense  and  a  long  period  of 
time,  are  hardly  possible  without  ownership.  In  Great 
Britain,  so-called  permanent  improvements  have  generally 
been  made  by  the  landlord ;  and  in  Ireland,  where  this  was 
not  the  case,  there  arose,  practically,  in  Ulster  a  system  of 
divided  ownership,  the  tenant  having  the  right  to  sell  his 
improvements.  In  the  most  recent  laws  affecting  agricul- 
ture, it  is  assumed,  in  Great  Britain,  that  the  landlord  still 


DISTRIBUTION.  261 

makes  the  permanent  improvements,  whilst  in  Ireland  the 
principle  of  tenant  right  has  been  extended  over  the  whole 
country. 

It  may  of  course  be  argued  that  the  state,  as  universal 
landlord,  would  make  the  permanent  improvements,  but 
the  appeal  to  history  does  not  confirm  this  view.  The  case 
of  the  United  States  has  already  been  mentioned,1  and  the 
opinion  of  Adam  Smith  on  the  crown  lands  may  also  be 
cited.  "  The  revenue  which  in  any  civilised  monarchy  the 
crown  derives  from  the  crown  lands,  though  it  appears  to 
cost  nothing  to  individuals,  in  reality  costs  more  to  the 
society  than  perhaps  any  other  equal  revenue  which  the 
crown  enjoys.  It  would,  in  all  cases,  be  for  the  interest  of 
the  society  to  replace  this  revenue  to  the  crown  by  some 
other  equal  revenue,  and  to  divide  the  lands  among  the 
people,  which  could  not  well  be  done  better,  perhaps,  than 
by  exposing  them  to  public  sale."  2  He  goes  on  to  say  that 
only  lands  which  are  sources  of  expense,  and  not  of  revenue, 
such  as  parks  and  gardens,  ought  to  belong  to  the  crown 
in  any  highly  civilised  monarchy. 

It  is  sometimes  maintained  that  land,  if  subject  to  private 
ownership,  becomes  a  monopoly,  and  as  such  unjustifiable. 
This  argument  is  supposed  to  derive  its  strength  from  the 
fact  that  land  is  limited.  But  so  far  as  land  is  merely  an 
instrument  of  production  belonging  to  different  owners, 
not  in  combination,  there  is  no  monopoly  proper.  The  es- 
sence of  monopoly  is  not  limitation,  but  absence  of  compe- 
tition. Mere  limitation  is  essential  to  all  wealth.  In  a 
country  of  peasant  proprietors,  no  one  would  speak  of 
monopoly,  and  yet  there  is  limitation ;  in  a  country  of  large 
estates,  the  farms  are  let  by  competition,  and,  generally 
speaking,  the  land-owners  cannot  lower  farmers'  profits,  or 
raise  the  prices  of  produce  to  the  consumer.  The  latter 
consideration  is  especially  clear  if  there  is,  as  at  present 
in  the  United  Kingdom,  keen  foreign  competition. 

i  Cf.  Bk.  I.,  Ch.  II.,  §4. 

-  Wi'Klth  »f  \<iti,ms.  Ilk.  V.,  Ch.  II.,  Pt.  I. 


262  PRINCIPLES  OF  POLITICAL  ECONOMY. 

The  general  conclusion  to  which  this  examination  leads 
is,  that  the  economic  advantages  of  private  ownership 
altogether  outweigh  those  of  state  ownership.  At  the  same 
time,  however,  it  may  be  admitted  that,  without  abolishing 
private  ownership  altogether,  the  state  may  advantageously 
impose  certain  restrictions  and  limitations,  —  some  of  a 
general  character,  and  others  specially  adapted  to  peculiar 
circumstances.  This  subject,  as  regards  agriculture,  is  of 
sufficient  importance  to  require  separate  treatment.  An 
introduction  to  the  general  principles,  however,  may  be 
made  by  taking  some  other  notable  cases. 

§  3.  On  the  limited  Quantity  of  Land  in  Certain  Re- 
spects. When  we  consider  land,  not  as  the  basis  of  agri- 
cultural production,  but  as  possessing  other  economic 
utilities,  the  argument  in  favour  of  private  ownership  is  not 
so  simple.  Take,  for  example,  the  case  of  mountain  scen- 
ery. The  right  of  access  would,  as  a  rule,  have  very  little 
commercial  value.  If  the  land  were  under  sheep  or  cattle, 
the  real  injury  would  be  very  small,  taking  the  country  as 
a  whole.1  No  one  could  maintain  that  the  sheep-farming 
of  Scotland  would  be  appreciably  affected  by  the  public 
right  of  access  to  the  hills.  And  if  any  injury  could  be 
proved  and  estimated,  the  proper  remedy  would  be  ade- 
quate compensation.  If  the  farmer  offered  less  rent,  the 
land-owner  would  be  entitled  prima  facie  to  a  correspond- 
ing claim.  From  the  purely  economic  point  of  view,  how- 
ever, opening  up  the  mountains  of  Scotland  would  probably 
increase  the  wealth  of  the  country,  and  eventually  raise 
the  rental,  especially  through  improvements  in  the  means 
of  communication,  that  is  to  say,  so  far  as  the  agricultural 
interests  are  concerned. 

But  when  the  land  is  mainly  devoted  to  game, — especially 
deer,  —  the  pecuniary  loss  to'  the  land-owner  might  be 
greater.  Here  again,  however,  the  case  is  simply  one  for 
fair  compensation,  whatever  that  may  be.  The  total 
value  of  all  the  deer  killed  is  insignificant ;  the  keepers 
1  Of  course,  excluding  dogs,  and  making  certain  restrictions. 


DISTRIBUTION.  263 

and  gillies  could  be  employed  much  more  advantageously, 
even  supposing — what  is  by  no 'means  probable  —  that 
their  occupation  would  be  gone. 

In  a  case  of  this  kind,  moreover,  it  must  be  apparent 
that  the  purely  economic  considerations  are  comparatively 
unimportant.  That  a  civilised  country  should  allow  a 
foreign  millionaire  to  make  a  new  forest  in  the  style  of 
William  the  Conqueror,  is  intolerable.  How  can  patriot- 
ism thrive  if  a  man  is  not  allowed  even  to  look  at  the  lakes 
and  mountains  of  what  he  is  supposed  to  call  his  native 
land  ?  To  revert  to  economic  considerations,  if  the  •  right 
of  access  can  only  be  restored  by  compensation,  let  com- 
pensation be  given ;  in  the  words  of  Adam  Smith  on  the 
odious  visits  of  the  tax-gatherer :  "  though  vexation  is, 
not  strictly  speaking,  expense,  it  is  certainly  equivalent  to 
the  expense  at  which  every  man  would  be  willing  to  re- 
deem himself  from  it." 

Another  case  in  which  the  limitation  of  land  may  call 
for  restriction  on  private  owners  is  that  of  building-land, 
especially  in  great  cities.  Here,  in  many  instances,  as  is 
shown  in  the  evidence  given  to  several  Royal  Commis- 
sioners, there  is  often  real  monopoly  of  the  worst  kind. 
It  is  hardly  necessary  to  point  out  that,  from  the  economic 
point  of  view,  insanitary  dwellings  and  over-crowding  are 
most  detrimental  to  the  efficiency  of  labour,  both  directly 
and  indirectly.  The  owners  who  take  these  excessive 
rents  perform  no  equivalent  economic  function.  On  the 
contrary,  they  not  only  injure  the  community  by  keeping 
up  plague-spots,  but  they  shake  security  and  the  whole 
institution  of  private  property  to  its  base.  It  is  abuses  of 
this  kind  that  appear  to  justify  confiscation  and  revolution  ; 
the  commercial  value  of  these  slums  is  so  great  that  full 
compensation  seems  impossible ;  people  begin  to  ask  if 
such  evils  are  to  be  permitted  out  of  deference  to  an 
abstract  principle ;  and  the  economic  considerations  are 
enforced  or  set  aside  by  appeals  to  natural  justice  and 
common-sense  morality. 


264  PRINCIPLES  OF  POLITICAL  ECONOMY. 

There  have  been  in  the  past,  and  there  still  are,  other 
cases  in  which  the  same  difficulties  arise.  Forms  of  prop- 
erty have  come  to  be  established  which  the  development 
of  morality  cannot  tolerate  ;  but,  having  been  permitted 
by  the  law,  and  having  entered  into  the  circle  of  contract 
and  exchange,  it  is  felt  that  injustice  would  be  done  unless 
compensation  were  given.  Take,  for  example,  the  abolition 
of  slavery  in  the  British  Colonies.  It  is  then  of  great  im- 
portance to  determine  the  grounds  on  which  compensation 
should  be  given,  and  the  methods  by  which  it  should  be 
computed. 

It  is  a  fundamental  maxim  of  political  society,  that  the 
state  has  a  right,  in  the  interests  of  the  public,  to  under- 
take any  expropriation  whatever.  On  this  there  can  be 
no  dispute.  But  in  estimating  the  interests  of  the  public, 
the  question  of  compensation  is  always  present.  The  state 
cannot  set  the  example  of  robbery  and  plunder  without 
affecting  industrial  security,  and  the  greater  the  develop- 
ment of  industry  and  credit,  so  much  the  more  important 
is  security.  Still,  as  already  pointed  out,  security  is  only 
a  means  to  an  end. 

§  4.  Economic  Principles  of  Compensation.  As  before, 
I  shall  endeavour  to  distinguish  between  the  economic  and 
the  moral  or  political  aspects  of  compensation.  In  any 
particular  instance,  the  question  will  be  actually  decided 
by  the  resultant  effects  of  a  variety  of  opinions  and  senti- 
ments. The  purely  economic  element  may,  in  some  cases, 
be  decisive,  as,  for  example,  when  a  government  wishes  to 
acquire  for  its  own  use  lands  or  buildings  of  an  ordinary 
kind.  In  such  cases,  the  government  is  simply  in  the  posi- 
tion of  any  individual  member  of  the  industrial  commu- 
nity, and  compensation  follows  from  the  general  principles 
at  the  basis  of  private  property. 

In  other  cases,  however,  there  may  be  a  conflict  between 
the  economic  and  other  forces.  It  may  happen  that  the 
only  obstacle  to  the  immediate  removal  of  some  recognised 
abuse  is  the  compensation  to  vested  interests.  The  growth 


DISTRIBUTION.  265 

of  the  sciences  that  bear  upon  public  health  in  such  mat- 
ters as  drainage,  prevention  of  infection,  and  the  like,  may 
reveal  the  fact  that  great  changes  ought  to  be  made  in 
large  cities,  changes  which  might  involve  the  destruction 
of  a  mass  of  buildings  which,  at  present,  yield  a  very  large 
income.  Ought  the  owners  of  these  insanitary  buildings 
to  receive  full  compensation,  and  who  ought  to  pay  the 
compensation  ?  The  latter  question  is  of  great  importance, 
because  the  resources  of  municipalities  are  obviously  lim- 
ited, and  it  may  happen,  that  full  compensation  would 
impose  an  effective  barrier  to  the  improvements  being 
undertaken. 

Again,  the  development  or  alteration  of  public  morality 
may  call  for  some  reform,  the  immediate  effect  of  which 
would  be  to  cause  great  pecuniary  loss  to  certain  individ- 
uals. It  is  conceivable  that,  with  a  reversion  to  an  ancient 
puritanical  type,  the  public  would  wish  to  abolish  the 
liquor  traffic,  horce-racing,  music-halls,  and  theatres,  just 
as  it  has  abolished  cock-fighting  and  gambling  hells.  But 
this  same  puritanical  type  might  have  great  respect  for 
private  property,  and  the  cost  of  full  compensation,  if 
admitted,  might  again  prove  an  effective  barrier. 

The  economic  principle  of  compensation  in  its  most 
general  form  may  be  stated  as  follows:  If  the  state  has 
recognised  legally  certain  forms  of  property  and  certain 
rights,  if  it  has  enforced  contracts  founded  on  these 
rights,  even  if  it  has  tacitly  permitted  certain  rights  in 
property  to  grow  up  under  laws  that  have  fallen  into 
desuetude,  although  not  formally  repealed,  then  full  com- 
pensation ought  to  be  given.  On  this  view  we  cannot 
argue  that  moral  conditions  have  changed,  that  the  owners 
have  broken  the  moral  law,  and  that  they  ought  to  be  pun- 
ished by  confiscation.  As  Mill  says:  "In  doubtful  cases 
the  question  would  turn  upon  what,  in  the  peculiar  cir- 
cumstances, was  sufficient  to  constitute  prescription;  and 
whether  the  legal  recognition  which  the  abuse  had  obtained 
was  sufficient  to  constitute  an  institution  or  only  an  occa- 
sional license." 


266  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Such  being  the  general  economic  principle,  what  are  the 
economic  grounds  on  which  it  rests?  The  answer  is,  that 
any  shock  to  security  is  an  injury  to  the  industrial  organ- 
isation ;  it  imposes  a  check  upon  freedom  of  contract  and 
freedom  of  exchange  generally ;  a  single  example  of  spoli- 
ation checks  the  spirit  of  enterprise,  just  as  the  failure  of 
a  single  bank  may  bring  on  a  commercial  crisis. 

We  are  now  in  a  position  to  see  that  economically  the 
principle  of  compensation  possesses  much  more  elasticity 
than  is  generally  supposed.  Just  as  in  the  human  body  it 
may  be  best  for  life  and  strength  to  lop  off  a  limb,  so  in 
the  body  politic.  Economic  diseases  may  require  vigorous 
remedies.  If,  then,  a  reformer  can  prove  that  the  shock 
to  security  would  be  transitory  arid  trifling,  whilst  the  ef- 
fects of  the  reform  would  be  permanent  and  considerable, 
economically  he  has  made  out  his  case,  and  he  may  carry 
out  his  reform  without  regard  to  vested  interests.  Thus, 
contrary  to  what  is  generally  supposed,  the  economic  prin- 
ciple of  compensation  falls  short  of  popular  ideas  of  strict 
justice.  It  is  much  less  rigid.  Justice  is  conceived  as  an 
end  to  be  attained,  though  the  heavens  fall.  But  security 
is  only  a  means  to  national  wealth ;  there  are  other  objects 
of  political  union  besides  national  opulence;  and  judicious 
and  occasional  violations  of  security  may  even  increase 
opulence. 

It  is,  however,  most  important  to  observe  that  in  the 
matter  of  compensation  the  admission  of  theoretical  ex- 
ceptions is  one  thing,  and  the  carrying  them  into  practice 
quite  another.  There  can  be  no  question  whatever  that 
the  simple  practical  rule  of  full  compensation  should  never 
be  infringed  except  on  the  strongest  grounds.  The  indi- 
rect effects  of  a  shock  to  security  are  extremely  difficult 
to  calculate,  whilst  the  gains  of  the  reform  are  liable  to  be 
exaggerated.  The  case  is  similar  to  that  of  free  trade. 
It  is  easy  to  establish  theoretical  exceptions,  but  as  a 
maxim  of  public  policy  it  is  generally  better  to  carry  out 
the  simple  principle  than  to  attempt  to  work  out  the 
exceptions. 


DISTRIBUTION.  267 

The  best  instruments  of  reconciliation  between  the  just 
and  the  expedient  are  time,  death,  and  taxes.1  A  long 
notice  to  present  holders  and  to  prospective  heirs  will 
satisfy  justice  and  narrow  the  limits  of  compensation.  It 
is,  however,  beyond  the  scope  of  this  work  to  discuss  the 
whole  question.2 

1  Cf.  Bentham. 

2  See  the  admirable  treatment  in  Professor  Sidgwick's  Elements  of 
Politics. 


CHAPTER  V. 

COMPETITION    AND   CUSTOM. 

§  1.  Competition  and  Distribution.  As  already  explained, 
according  to  the  plan  of  this  work,  the  distribution  of 
wealth  is  regarded  as  mainly  dependent  upon  the  organi- 
sation of  society  for  production.  For  the  sake  of  clearness 
of  exposition  in  the  preceding  chapters  of  this  book  I  have 
adopted  the  analytic  method,  that  is  to  say,  I  have  taken 
the  fully  developed  conceptions  of  private  property  and 
freedom  of  contract,  and  endeavoured  to  unfold  their 
meaning  and  to  describe  broadly  their  operation  in  a 
modern  industrial  society  in  which  other  influences  may 
be  regarded  provisionally,  as  of  such  minor  importance 
that  they  may  be  neglected.  The  system  examined  may, 
for  the  sake  of  brevity,  be  called  the  system  of  competi- 
'tion ;  competition  is  supposed  to  rule  supreme  both  in  pro- 
duction and  distribution.  Government  provides  a  fail- 
field  or  open  market,  and  people  make  the  best  bargains 
they  can  as  to  the  work  they  shall  perform  and  the  reward 
they  shall  receive ;  they  accumulate  or  consume  according 
to  their  fancy,  and  they  leave  their  property  to  whom  they 
please.  In  such  a  system  there  are  of  course  combinations, 
but  they  are  assumed  to  be  the  effect  of  the  free  actions  of 
individuals ;  and  in  general  all  other  combinations  are  dis- 
allowed by  law. 

But  even  in  a  modern  industrial  society,  such  as  Eng- 
land, the  actual  influence  of  competition  is  modified  by 
other  forces  which  are  too  important  to  be  neglected,  and 
taking  the  whole  world,  these  forces  are,  on  balance,  still 

268 


DISTRIBUTION.  269 

superior  to  competition.  In  the  past  the  economic  freedom 
of  the  individual  was  much  more  restricted,  and  the  effects 
of  these  restrictions  are  still  felt.  It  is  convenient  to  have 
one  word  to  indicate  these  various  influences  which  modify 
competition,  and  probably  the  most  suitable  for  the  purpose 
is  Custom.1 

§  2.  Custom  and  Distribution.  Custom,  as  opposed  to 
competition,  includes,  in  the  first  place,  the  mere  force 
of  habit,  the  vis  inertia,  which  is  opposed  to  any  kind  of 
change  simply  because  it  is  a  change.  Habit  of  this  kind 
is  one  of  the  chief  causes  of  inequality  of  wealth  ;  the  paths 
to  fortune  are  often  made  by  breaking  through  routine. 
It  is  habit  which  is  the  chief  element  in  the  immobility  of 
labour,  and  habit  which  imposes  sumptuary  laws  on  con- 
sumption. Habit,  however,  in  this  sense,  is  simply  the 
negation  of  freedom. 

But  if  economic  forces  are  to  be  divided,  as  by  Mill,  into 
two  great  groups,  and  custom  is  to  embrace  all  that  is  left 
over  by  competition,  then  habit,  even  if  extended  to  in- 
clude habitual  obedience  of  the  weaker  to  the  stronger,  is 
only  an  element  in  custom.  Custom  must  be  regarded  not 
only  as  negative  and  inert,  but  as  positive  and  active. 

Take,  for  example,  the  mediaeval  period.  Nothing  is 
more  common  than  the  assertion  that  in  the  Middle  Ages 
people  were  governed  by  custom,  and  that  competition  was 
practically  absent.  But  to  make  the  assertion  true,  cus- 
tom must  mean  much  more  than  conforming  to  habit  and 
routine.  It  must  include  the  variety  of  regulations  im- 
posed by  the  feudal  system,  the  Church,  the  guilds  and  the 
corporations ;  it  must  include  even  the  laws  of  the  central 
government,  for  from  the  economic  standpoint  laws  are 
simply  customs  with  a  peculiar  sanction.  The  essence 
of  distribution,  according  to  competition,  is  freedom  of 
enterprise  ;  the  initiative  is  taken  by  individuals  according 
to  their  own  judgment ;  in  distribution  by  custom,  on  the 

1  For  a  critical  analysis  of  custom,  see  Sidgwick's  Principles,  Bk.  II., 
Ch.  XII. 


270  PRINCIPLES  OF  POLITICAL  ECONOMY. 

other  hand,  private  judgment  gives  way  to  various  forms 
of  authority. 

§  3.  The  Antagonism  of  Competition  and  Custom.  "  The 
farther  we  look  back  into  history,"  says  Mill,1  "  the  more 
we  see  all  transactions  and  engagements  under  the  influ- 
ence of  fixed  customs.  The  reason  is  evident.  Custom  is 
the  most  powerful  protector  of  the  weak  against  the  strong, 
their  sole  protector  where  there  are  no  laws  or  government 
adequate  to  the  purpose."  This  passage  is  a  good  illustra- 
tion of  the  danger  of  taking  broad  surveys  of  universal 
history.  A  broad  view  is  almost  of  necessity  superficial. 
It  is  like  studying  geology  through  the  wrong  end  of  a 
telescope.  Again,  those  reasons  assigned  for  the  great 
movements  of  history  which  are  supposed  to  be  evident, 
are  generally  erroneous.  To  assume  that  in  "former 
times "  custom  prevailed  —  and  the  more  the  farther  we 
go  back  —  simply  because  it  was  the  most  powerful  pro- 
tector of  the  weak  against  the  strong,  is  a  hypothesis  that 
will  not  stand  verification.  Customs,  which  have  had 
great  influence  in  moulding  the  economic  structure  of 
societies  in  different  times  and  places,  have  originated  and 
endured  in  various  ways  and  from  various  causes,  but 
whether  as  the  generating  or  continuing  force,  the  protec- 
tion of  the  weak  against  the  strong  is  probably  rather  the 
exception  than  the  rule.  It  would  be  much  nearer  the 
truth  to  say  that  customs  have  enabled  the  strong  to  tyran- 
nise over  the  weak ;  and  that  only  with  the  breaking  down 
of  customs  the  weak  have  escaped  from  slavery,  serfdom, 
and  other  forms  of  oppression.  This  contention  is  borne 
out  by  reference  to  other  customs,  as,  for  example,  religious 
superstitions 2 ;  the  attempt  to  assign  what  we  should  con- 
sider rational  motives  has  generally  only  misled  the  inves- 
tigator. 

As  already  stated  in  the  introduction,  it  is  impossible  to 
combine  the  systematic  treatment  of  economic  principles 

1  Bk.  II.,  Ch.  IV.,  §  2. 

2  Cf.  The  Golden  Bough,  by  J.  G.  Frazer. 


DISTRIBUTION.  271 

with  an  adequate  account  of  the  economic  history  even  of 
a  single  country.  At  the  same  time  it  has  been  maintained 
that  it  is  not  sufficient,  if  political  economy  is  to  be  re- 
garded as  a  positive  science,  to  make  deductions  from  a 
few  simple  and  general  hypotheses.  A  large  part  of  the 
remainder  of  the  present  book  will  accordingly  be  devoted 
to  the  examination  of  some  of  the  principal  modes  in  which 
competition  has  been  modified  by  custom,  using  both  terms 
in  the  evident  sense.  A  description  of  all  the  modes  is 
obviously  impossible ;  but  enough  may  be  accomplished 
to  throw  light  on  the  general  problems  of  distribution. 
The  principle  adopted  in  the  selection  of  customary  forces 
will  be  to  take  those  which  have  most  influence,  directly 
or  indirectly,  on  various  existing  systems. 

With  the  leading  idea  that  the  distribution  of  wealth  is 
intertwined  with  the  organisation  of  society  for  productive 
purposes,  we  may  take  in  order  land,  labour,  capital. 

We  have  to  answer  two  questions  or  groups  of  ques- 
tions :  (1)  How  are  the  occupation  of  land,  the  conditions 
of  labour,  and  the  employment  of  capital  determined 
in  the  absence  or  modification  of  the  system  of  private 
property?  (2)  How  are  rents,  wages,  and  profits  deter- 
mined in  the  absence  or  partial  suppression  of  competition  ? 
We  shall  then  be  in  a  position,  in  the  next  book,  to  consider 
these  three  great  classes  of  income  as  cases  of  value  mainly 
governed  by  freedom  of  exchange. 


CHAPTER   VI. 

CUSTOM   AND   VILLAGE   COMMUNITIES. 

§  1.  Custom  as  affecting  the  Ownership  and  the  Occupa- 
tion of  Land.  To  the  average  Englishman  no  distinction 
is  more  sharply  marked  than  that  between  the  landlord  and 
tenant.  It  is  commonly  supposed  that  land  belongs  to  its 
owners  in  the  same  sense  as  money  or  a  watch.  This  has 
not  been  the  theory  of  English  law  since  the  Conquest,  nor 
has  it  been  so  in  its  full  significance  at  any  time.  No  ab- 
solute ownership  of  land  is  recognised  by  our  law-books, 
except  in  the  crown.  All  lands  are  supposed  to  be  held 
immediately  or  mediately  of  the  crown,  though  no  rent  or 
services  may  be  payable  and  no  grant  from  the  crown  is 
on  record.1  The  same  view  is  expressed  by  another  emi- 
nent authority :  "  The  first  thing  the  student  has  to  do  is 
to  get  rid  of  the  idea  of  absolute  ownership.  Such  an  idea 
is  quite  unknown  to  the  English  law.  No  man  is  in  law 
the  absolute  owner  of  lands.  He  can  only  hold  an  estate 
in  them."  2 

When  we  consider  the  powers  of  a  modern  land-owner 
over  his  land,  that  he  may  let  it,  mortgage  it,  sell  it,  leave 
it  by  will,  allow  it  to  run  to  waste,  build  on  it,  or  sow  it  with 
salt,  without  any  reference  to  the  crown,  the  distinction 
may  seem  to  partake  of  the  character  of  a  legal  fiction. 
But  the  distinction — like  the  survivals  of  rudimentary 
structures  in  animals  —  has  important  bearings  upon  the 

1  This  passage  is  abbreviated  from  Sir  F.  Pollock's  Land  Laws,  p.  12, 
a  work  to  which  I  am  much  indebted  in  many  problems  connected  with 
land. 

2  Williams'  Real  Property,  p.  18. 

272 


DISTRIBUTION.  273 

history  of  the  development  of  our  present  land  system. 
It  recalls  the  time  when,  under  feudalism,  the  obligations 
imposed  on  possession  were  very  real  and  the  rights  of 
property  proportionately  limited. 

Similarly,  to  the  average  Englishman  the  remnants  of 
the  "  run-rig "  system  in  Scotland  and  Ireland,  and  of 
peculiar  rights  over  commons  in  England,  appear  to  be 
only  curious  and  inexplicable  antiquities.  But,  on  exam- 
ination, they  lead  back  to  a  period  of  what  —  by  contrast 
with  the  present  system  —  can  only  be  described  as  a  gen- 
eral system  of  ownership  and  cultivation  in  common. 

As  might  be  expected,  the  historical  is  confirmed  by  the 
comparative  method.  Under  similar  economic  conditions, 
similar  land  systems  have  arisen  in  various  parts  of  the 
world.  But  all  nations  have  not  been  equally  progressive, 
and  accordingly,  we  still  find  living  examples  of  village 
communities  and  of  feudal  obligations. 

The  object  of  the  present  chapter  is  to  give  some  account 
of  village  communities.  It  is  a  subject  to  which  in  recent 
years  great  labour  has  been  devoted ;  on  many  important 
points  opinions  have  been  modified  and  remodified,  and  are 
still  unsettled.1  Into  these  controversies  it  is  impossible 
to  enter ;  I  shall  only  attempt  to  describe  the  principal  fea- 
tures of  certain  prominent  types,  and  to  give  a  few  of 
the  notable  examples. 

§  2.  The  Russian  Mir.  A  comparison  between  the 
modern  constitution  of  the  mir  (the  Russian  village  com- 
munity) and  that  described  in  its  charters,  proves  the 
widely  different  character  of  the  two,  while  the  differences 
between  them  support  the  theory  of  a  natural  evolution  of 
the  community,  an  evolution  not  yet  completed  in  more 
than  one  part  of  the  Empire.2  It  is  interesting  to  trace 

1  See  Villeinage  in  England,  by  Paul  Vinogradoff,  Introduction, 
pp.  1-39. 

-  Modern  Customs  and  Ancient  L*ws  of  Russia,  by  Maxime  Kova- 
levsky,  p.  73.  Throughout  this  section,  I  am  much  indebted  to  this 
excellent  work. 


274  PRINCIPLES   OF   POLITICAL  ECONOMY. 

the  principal  stages  in  the  development,  not  only  on  account 
of  the  mir  itself,  —  "  Russia  will  revolutionise  the  world 
with  her  system  of  the  mir"  is  a  saying  attributed  to 
Cavour,  —  but  because  it  throws  a  strong  light  on  the  de- 
velopment of  village  communities  in  other  parts  of  the 
world.  The  earliest  mode  of  land-tenure  in  Russia  is  con- 
nected with  the  undivided  household,  or  "  great  family." 
All  over  Russia  examples  of  these  family  communities  are 
still  found  living  under  the  same  roof  in  numbers  varying 
from  ten  to  over  fifty.  Blood  relationship  is  the  main 
bond,  but  adoption  often  takes  its  place.  The  house-elder 
has  none  of  the  extreme  power  of  the  Roman  paterfamilias; 
he  is  but  primus  inter  pares,  the  president  of  a  council 
formed  of  all  the  grown-up  members.  He  represents  the 
household  before  the  authorities  of  the  village  community, 
and  those  of  the  wider  area  (the  volosfy  embracing  several 
villages.  He  arranges  the  work  in  the  fields,  if  necessary, 
hires  additional  labour,  or,  in  the  contrary  case,  sends  away 
members  of  the  family  to  seek  employment  elsewhere.  If  a 
member  is  absent  he  sends  his  earnings  to  the  household,  and 
they,  in  turn,  look  after  his  wife  and  children.  Almost  the 
only  form  of  private  property  consists  in  the  private  earn- 
ings of  the  girls  who  attempt  to  accumulate  a  dowry. 

The  modern  system  of  village  communities  is  descended 
from  the  system  of  great  families  which  was  once  diffused 
all  over  the  Russian  Empire.  At  first,  when  land  was 
abundant  and  population  scanty,  each  household  was 
allowed  to  sow  as  much  ground  as  it  could  till ;  when  the 
harvest  was  reaped  the  land  was  abandoned  and  a  new 
piece  taken  up.  But  as  land  became  relatively  scarce,  a 
distribution  was  made,  under  the  supervision  of  the  village 
authorities,  and  eventually  the  parcels  of  land  came  to  be 
retained  for  three  years,  at  the  end  of  which  they  were 
returned  to  the  community  and  a  new  appropriation  was 
made.  Side  by  side  with  the  growth  of  this  process  of 
distribution,  there  appears  to  have  been  to  a  large  extent  a 
disintegration  of  the  great  families. 


DISTRIBUTION.  275 

The  pasture  and  forest  land  were  subject  to  a  community 
of  ownership,  and  sometimes  belonged  to  several  villages 
(the  volost).  Every  member  of  the  volost  had  a  right 
of  unlimited  use,  but  strangers  had  no  such  right.  The 
points  of  peculiar  interest  in  contrasting  the  earlier  with 
the  later  system  are  that  at  first  serfdom  was  almost  un- 
known, that  there  was  considerable  irregularity  in  the  land 
obtained  by  different  homesteads,  and  that  there  was  at 
first  no  periodical  distribution. 

Apart  from  these  free  Muscovite  communities,  there 
were  established  —  especially  by  the  monasteries  —  de- 
pendent communes  analogous  to  those  on  the  mediaeval 
English  manors.  Each  manor  contained  so  much  demesne/ 
land,  and  so  much  was  held  by  the  dependent  householdsJ 
The  peasants  performed  so  much  labour  (generally  threej 
days  a  week)  in  return  for  the  possession  of  their  lands. 
Up  to  the  end  of  the  sixteenth  century  they  had  the  right 
of  free  removal.1  Apart  from  these  feudal  obligations  the 
peasant  land  was  treated  as  in  the  free  villages.  The 
general  characteristics  of  the  old  Russian  community  are 
thus  summarised  by  M.  Kovalevsky 2 :  "It  was  a  kind  of 
ownership  based  on  the  idea  that  the  true  proprietor  of 
the  land  was  none  other  than  the  commune.  The  rights 
of  the  commune  to  the  soil  occupied  by  the  individual 
households  appears  in  the  indivisibility  of  the  waste  and 
forest  lands,  and  in  the  fact  that  vacant  shares  are  regu- 
larly disposed  of  by  the  commune,  and  that  nobody  is 
allowed  to  occupy  a  piece  of  ground  lying  within  the  limits 
of  the  village  commune,  unless  he  is  authorised  by  the 
local  authorities.  Arable  land  and  meadows  are,  as  a  rule, 
in  the  hands  of  private  households,  which  pay  taxes  and 
perform  manorial  labour  in  direct  proportion  to  the  amount 
they  own.  This  ownership  does  not  suppose  the  existence 
of  certain  limits  which  nobody  is  allowed  to  infringe.  It 
implies  only  the  right  to  have  a  definite  share  in  the  three 
fields  which  constitute  the  agricultural  area  of  the  village, 
i  Kovalevsky,  op.  eft.,  p.  90.  2  Ibid.,  p.  92. 


276  PRINCIPLES  OF  POLITICAL  ECONOMY. 

The  shares  are  not  equal,  but  differ  in  direct  proportion  to 
the  payments  which  the  household  is  called  upon  to  make, 
partly  to  the  state,  and  partly  to  the  lord  of  the  manor. 
Periodical  redistributions  are  unknown,  and  no  mention  is 
made  of  the  run-rig  system  of  some  modern  English  and 
Irish  manors." 

In  the  transition  to  the  modern  system  we  find  estab- 
lished the  principle  of  equal  division  of  the  soil  among  the 
individual  members  of  the  mir,  and  periodical  redistribu- 
tion to  secure  this  equality.  The  chief  causes  were  the 
increase  of  population  and  the  consequent  abandonment  of 
the  practice  of  migration.  Under  the  old  system,  land- 
owners tried  to  attract  colonists  to  their  waste  lands  by 
granting  free  occupation  for  a  time,  and  any  villagers  could 
easily  find  new  homes  if  dissatisfied  with  their  native  place. 
But  during  the  seventeenth  century  serfdom  became  the 
general  rule  and  free  migration  was  prevented.  A  little 
later  (A.D.  1719),  Peter  the  Great  abolished  the  land  tax 
and  substituted  a  capitation  tax,  all  the  members  of  the 
village  being  mutually  responsible. 

When  the  taxes  were  no  longer  levied  according  to  the 
land  possessed,  but  according  to  the  persons  attributed  to 
it  for  taxation,  the  inequality  was  so  great  that  the  peas- 
ants demanded  redistribution  in  equal  shares.  Accord- 
ingly, redivisions  of  the  lands  were  made  for  periods  varying 
from  three  to  nineteen  years. 

The  abolition  of  serfdom  took  place  in  1861,  but  the 
peasants  still  possess  a  distinct  organisation  for  adminis- 
tration, and  live  under  a  different  set  of  laws.  Only  those 
of  peasant  blood  can  vote  in  the  assemblies  and  share  in 
the  allotment  of  land.  The  ostensible  reason  of  the  exclu- 
sion of  the  upper  classes  was  the  fear  of  the  restoration  of 
feudal  power.  Not  only  the  "  squires,"  whether  noblemen 
or  merchants,  but  also  the  parish  priests,  are  excluded  from 
the  village  assembly.  M.  Kovalevsky  justly  calls  attention 
to  the  evils  which  result  from  the  absence  of  persons  of 
education  and  position ;  progress  in  sanitation  and  agri- 


DISTRIBUTION.  277 

culture  is  very  slow ;  and  the  rich  peasants  (the  eaters  of 
the  mir),  who  have  amassed  their  wealth  by  usurious  prac- 
tices, obtain  undue  influence. 

The  arrangements  for  the  partition  of  lands  and  the 
apportionment  of  taxation  are  made  by  the  popular  as- 
sembly of  the  mir,  a  majority  of  two-thirds  being  required. 
By  the  Act  of  Emancipation,  the  state  advances  money  to 
the  communes  to  pay  for  the  land  which  the  feudal  pro- 
prietor was  forced  to  surrender.  As  soon  as  the  peasants 
pay  back  this  money,  they  become  legal  proprietors.  The 
payments  may  be  made  either  by  the  whole  commune  or 
by  separate  households.  Thus  the  way  is  opened  for  the 
acquisition  of  private  property  in  land.1  This  provision 
has  already  been  largely  taken  advantage  of,  and,  from 
year  to  year,  in  an  increasing  proportion. 

In  the  expropriation  of  1861,  only  the  arable  land  was 
affected,  the  waste  and  forest  being  left  to  the  lord  of  the 
manor.  As  a  consequence,  the  communes  were  obliged  to 
diminish  the  number  of  their  cattle  and  to  convert  some 
of  their  arable  into  pasture.  Fuel  is  also  only  obtainable, 
in  many  places,  in  return  for  labour  on  the  lord's  demesne. 

As  regards  the  arable  land,  the  commoners,  in  making 
the  distribution,  consider  both  fertility  and  situation. 
They  have  a  number  of  large  open  fields  (corresponding 
to  the  English  "shots"  and  "furlongs"),2  and  in  each  of 
these  every  householder  receives  a  number  of  strips  equal 
to  the  number  of  taxed  persons  in  his  household.  In  this 
way  the  possessions  of  each  household  are  intermingled, 
in  the  way  so  graphically  described  by  Mr.  Seebohm,  as 
arising  from  the  old  English  village  community. 

The  meadows  are  often  mown  in  common,  the  hay  being 
equally  divided.  The  three-field  system  of  rotation  — 
namely,  the  winter,  summer,  and  fallow  —  is  almost  uni- 
versal. The  fields  become  common  pasture  after  the 

1  The  owner  cannot  sell  it  to  a  stranger  without  the  consent  of  the  mir, 
which  has  always  the  right  of  pre-emption. 

2  See  Mr.  Seebohm's  English  Village  Community,  passim. 


278  PRINCIPLES  OF  POLITICAL  ECONOMY. 

harvest  is  gathered.  From  the  methods  of  division  and 
cultivation,  it  follows  that  the  same  system  of  agriculture 
must  be  followed  by  all  at  the  same  time,  —  e.g.,  ploughing, 
sowing,  reaping ;  this  again  involves  a  great  deal  of  mutual 
help  or  combination  of  labour. 

From  the  economic  standpoint,  the  most  striking  objec- 
tions to  the  mir,  which  also  seem  to  render  its  long  con- 
tinuance under  modern  conditions  doubtful,  are,  (1)  the 
natural  growth  of  population  under  the  system  of  equal 
division.  Hitherto  this  increase  has  been  slow,  owing 
partly  to  the  large  mortality  of  the  children,  and  partly  to 
the  women  being  much  older  than  their  husbands,  and  to 
the  prevalence  of  immorality.  But  the  infant  mortality 
might  readily  be  lessened,  and  the  system  of  unequal  mar- 
riages, which  rests  on  the  convenience  of  the  head  of  the 
family  in  obtaining  women  servants  by  the  marriage  of 
his  boys,  seems  to  be  falling  into  disfavour.  (2)  The 
second  objection  lies  in  the  constraint  placed  upon  indi- 
vidual enterprise  by  the  compulsory  cultivation  according 
to  fixed  methods,  in  the  impossibility  of  highly  intensive 
cultivation  with  the  periodic  divisions  of  the  land  and  the 
absence  of  enclosures,  and  in  causes  similar  to  those  which, 
in  England  in  the  fifteenth  century,  secured  the  victory 
of  several  (enclosed,  individual)  over  champion  (non-en- 
closed, common)  cultivation. 

"  The  village  community,"  says  the  author  to  whom  I 
have  so  often  referred,  "that  venerable  survival  of  an 
epoch  closely  akin  to  the  patriarchal,  will  disappear  in 
Russia  as  it  has  already  disappeared  in  other  countries  of 
Europe.  It  will  give  way  to  private  property  in  land 
unless,  and  this  is  not  very  likely  under  present  conditions, 
it  be  completely  transformed  by  the  extension  of  commu- 
nistic principles  to  capital.  Those  who,  like  myself,  do 
not  believe  in  the  possibility  of  leaps  and  bounds  in  matters 
of  social  progress,  will  probably  consider  that  such  a  state 
of  things  belongs  to  the  number  of  those  dreams,  the  prac- 
tical realisation  of  which  is  to  be  looked  for  only  in  a  re- 


DISTRIBUTION.  279 

mote  future."  This  judgment,  in  the  opinion  of  the 
present  writer,  is  the  only  one  possible  on  the  application 
of  the  historical  and  comparative  methods.1 

§  3.  Other  Examples  of  existing  Village  Communities. 
Next  to  Russia,  India  is  the  most  important  example  of 
the  present  existence  of  village  communities,  although  in 
the  manner  described  by  Sir  H.  Maine,2  their  primitive 
simplicity  and  essential  features  were  sacrificed  for  a  time, 
at  least,  to  alien  English  and  Mohammedan  law,  the  zemin- 
dar or  official  collector  of  customary  taxes  having  been 
converted  into  a  kind  of  manorial  proprietor.  In  recent 
years,  however,  the  tendency  has  been  to  protect  these 
communities,  and  over  large  districts  to  regard  them  as 
the  agricultural  and  fiscal  unit.  The  general  features  — 
allowance  being  made  for  the  differences  in  climate  —  are 
not  unlike  those  of  the  Russian  mir  and  the  early  Teutonic 
settlements.  There  is  the  division  into  strips,  and  the  cul- 
tivation according  to  minute  customary  rules  of  the  arable 
portion,  and  there  is  a  certain  portion  of  waste  enjoyed  as 
pasture  by  the  different  members.  The  village  consists  of 
households,  each  under  a  despotic  head,  the  family  life 
being  characterised  by  extraordinary  secrecy  and  isola- 
tion. In  many  communities  the  customs  are  declared 

1  Compare  E.  de  Laveleye,  Primitive  Property,  Ch.  III.,  "Economic 
Results  of  the  Russian  Mir." 

A  more  favourable  view  of  the  mir  is  taken  by  .1.  D.  Field,  in  his 
excellent  work  on  Landholding,  and  the  Relation  of  Landlord  and  Ten- 
ant in  Various  Countries  (Ch.  X.).  This  work,  however,  was  published 
in  1883,  and  conditions  have  been  changing  rapidly.  The  account  of  the 
development  of  the  mir  and  of  the  results  of  the  Emancipation  is  very 
full  and  clear,  and  gives  several  excellent  analogues. 

The  essay  on  "The  Russian  Agrarian  Legislation  of  1861,"  in  the 
Cobden  Club  Systems  of  Land  Tenure,  by  Julius  Faucher,  supports  the 
view  taken  in  the  text :  "  Had  the  ancient  Russian  villages  not  been  com- 
munists, they  would  not  have  become  slaves,  .  .  .  and  (as  regards  the 
existing  race)  anything  rather  than  communistic  habits  and  leanings  are 
to  be  expected  from  them  as  free  men  ;  and  I  hope  it  will  be  so,  in  the 
general  interests  of  civilised  humanity  "  (p.  350). 

-  Village  Communities,  Lecture  IV. 


280  PRINCIPLES  OF  POLITICAL  ECONOMY. 

and  interpreted,  not  by  a  council  of  elders,  but  by 
the  headman  alone,  his  office  being  sometimes  hereditary 
and  sometimes  nominally  elective.  The  various  trades  or 
crafts  necessary  to  a  self-supporting  village  are  also  often 
hereditary,  e.g.,  the  blacksmith,  the  harness-maker,  etc.1 

In  Java  a  system  prevails  closely  analogous  to  that  of 
India.  The  village  is  jointly  responsible  for  the  payment 
of  taxes,  and  there  is  common  use  of  the  waste.  The  rice 
fields  are  periodically  divided  amongst  the  village  families, 
and  the  houses  and  gardens  are  private  property.  Irriga- 
tion is  conducted  according  to  communal  rules  and  plans.2 

The  Allmends  of  Switzerland  furnish  another  example 
of  common  cultivation.  These  are  lands  belonging  to  the 
communes,  the  right  of  use,  however,  being  hereditary  in 
certain  families  only,  and  most  residents,  even  of  long 
standing  and  although  having  political  rights,  are  excluded. 
The  allmend  furnishes  wood  for  fire  and  building,  pasture 
for  cattle  on  the  alp,  and  a  certain  portion  of  arable  land. 
In  come  cases  there  is  still  periodical  division  of  the  land, 
in  others  the  land  is  let  and  the  proceeds  devoted  to  the 
expenses  of  the  commune. 

§  4.  Survivals  in  Great  Britain.  In  Scotland,  in  the 
crofting  parishes,  we  find,  as  a  rule,  that  the  tenants  have  a 
certain  amount  of  hill  ground  on  which  they  have  the  right 
to  pasture  so  many  sheep  or  cattle,  the  number  varying  in 
different  cases  according  to  the  holding.  As  soon  as  the 
crops  are  gathered  the  ground  is  thrown  open  in  the  same 
way.  There  are,  however,  no  periodical  divisions,  and  the 
village  had  no  rights  not  derived  from  the  feudal  proprie- 
tor until  the  recent  legislation,  giving  effect  to  presumed 
custom,  established  fixity  of  tenure  at  a  fair  rent,  and 
made  provisions  for  consolidating  holdings. 

1  For  a  most  elaborate  account  of  the  Indian  systems,  see  Field's  Land- 
holding,  op.  cif.,  supra. 

2  Cf.  Bg  Laveleve.  Pr''j»iti^'>    Py/y/n-ty,  Ch.  IV.      See,  however,  the 
criticism  of  De  Coulanges,  Origin  of  Property  in  Land,  p.  113  (transla- 
tion). 


DISTRIBUTION.  281 

In  England  there  still  survive  a  number  of  commons 
and  lammas-lands  in  which  certain  members  of  a  village 
have  definite  rights,  and  there  are  abundant  traces  of  the 
old  agricultural  communities.  In  most  of  the  countries 
of  Europe  where  private  property  has  become  the  rule, 
there  are  also  survivals  which  point  to  the  wide  prevalence 
of  customary  cultivation  in  common.  The  work  of  Mr. 
Seebohm,  on  the  historical  development  of  the  English 
Village  Community,  in  which,  like  a  geologist,  he  proceeds 
to  construct  the  past  out  of  fragmentary  and  scanty  records, 
deserves  the  attention  of  every  student  of  political  econ- 
omy as  a  brilliant  example  of  the  historical  method.  His 
results  may  require  modification,1  but  his  mode  of  treat- 
ment is  always  suggestive  and  fruitful.  Although  nomi- 
nally this  work  is  confined  to  England,  the  search  for  a 
rational  explanation  has  led  the  writer  to  make  a  wide 
survey  of  many  other  countries  at  different  times. 

Before  Mr.  Seebohm's  work  appeared,  many  writers 
had  called  attention  to  the  wide  prevalence  of  common 
cultivation  in  England  in  recent  times.  A  passage  is 
quoted  by  Sir  Henry  Maine  2  from  Marshall's  Treatise  on 
Landed  Property  (1804),  in  which  the  writer,  from  per- 
sonal observation  of  "provincial  practice,"  attempts  to 
construct  a  picture  of  the  ancient  agricultural  state  of 
England.  He  notices  the  division  of  the  arable  land  into 
three  great  unenclosed  fields  adapted  for  the  regular  trien- 
nial succession  of  fallow,  wheat  (or  rye),  and  spring  crops 
(oats,  beans,  peas,  etc.).  He  describes  also  the  division  of 
these  fields  into  strips,  and  the  modes  in  which  the  meadows 
and  the  waste  were  used.  He  gives  also  statistics  on  the 
extent  to  which,  in  his  day,  these  open  and  common  fields 
existed,  which  have  been  summarised  by  the  late  Professor 
Nasse.3  Mr.  Seebohm 4  points  out  that  taking  the  whole 

1  Cf.  Vinogradoff's  Villeinage  in  England. 

2  Village  Communities,  p.  90. 

8  The  Common  Field  System  of  England  in  the  Middle  Ages. 
4  Op.  fit.,  p.  14. 


282  PRINCIPLES  OF  POLITICAL  ECONOMY. 

of  England  with,  roughly  speaking,  its  10,000  parishes, 
nearly  4000  Enclosure  Acts  were  passed  between  1760 
and  1844,  the  object  of  these  acts  being  expressly  to  get 
rid  of  the  old  common  unenclosed  fields.  But  in  spite  of 
the  Enclosure  Acts,  the  old  system  has  left  many  indelible 
traces  on  the  surface  of  the  land  itself  and  the  nature  of 
the  holdings,  in  the  size  and  shape  of  the  fields.1 

The  open  fields  were  originally  divided  into  long-acre 
strips,  a  furlong  (i.e.,  a  furrow-long)  in  length  and  four 
rods  in  width.  Originally,  these  strips  were  separated  by 
green  balks  of  unploughed  turf,  and  these  balks  can  still 
be  traced.  A  bundle  of  these  long-acre  strips  a  furlong 
in  width  made  a  "shot"  (Anglo-Saxon),  " quarentena " 
(Latin),  "furlong"  (old  English),  and  these  furlongs  were 
divided  by  broader  balks  generally  overgrown  with  bushes. 
The  roads  by  which  access  was  obtained  to  the  strips  usu- 
ally lay  along  the  side  of  the  furlong  and  at  the  end  of  the 
strips,  and  these  roads,  often  at  right  angles  to  one  an- 
other, still  survive.  There  are  further  traces  on  the  land 
itself  of  the  old  "  headlands "  (Scotch  head-rig),  the 
"linches,"  "butts,"  "gored  acres,"  and  pieces  of  "no 
man's  land."2  Canon  Taylor,  in  the  paper  cited  above, 
gives  some  very  remarkable  examples  of  the  effects  of  the 
same  method  of  ploughing  in  these  open  fields,  having 
been  practised  for  many  generations. 

Not  only  on  the  surface  of  the  land,  however,  but  in 
the  present  distribution  of  the  fields  and  closes  constitut- 
ing a  farm,  the  effect  of  the  common  open  fields  may  be 
traced.  Taking  any  manor  as  a  centre,  we  find  the  farms  of 
which  it  is  composed  not  consisting  only  of  solid  blocks,  as 
in  the  newly-settled  land  of  the  United  States,  but  of  a 
number  of  little  fields  scattered  about  in  the  most  admired 
disorder,  and  at  a  considerable  distance  from  one  another. 
Of  the  present  inconvenience  and  want  of  economy  in- 

1  Compare,  also,  Canon  Taylor's  paper  in  Domesday  Studies  or  "  Domes- 
day Survivals." 

2  Seebohm,  p.  6. 


DISTRIBUTION.  283 

volved  in  the  arrangement  of  farming  land  there  can  be 
no  doubt  from  the  modern  agricultural  standpoint,  and  if 
a  tabula  rasa  could  be  made  of  the  land,  this  is  the  last 
method  of  distribution  which  would  be  adopted.  The  in- 
ference is  plain  that  this  irregular,  straggling,  scattered 
ownership  and  occupation  of  the  land  must  be  a  survival 
from  a  past  custom,  of  which  the  inner  meaning  has  been 
lost. 

I  proceed  to  note  the  principal  features  of  the  system  at 
the  time  of  the  Conquest,  and  the  processes  and  causes  of 
its  decay.1 

§  5.  The  Mediaeval  Village  Community.  At  the  comple- 
tion of  the  Conquest  there  were  certainly  manors  every- 
where, some  belonging  to  the  king,  others  to  great  barons 
and  prelates,  and  others  to  the  mesne  tenants  of  these 
greater  lords.2  Some  lords  held  many  manors  and  were 
represented  by  a  steward  or  reeve  (villicus).  The  typical 
manor  was  a  manorial  lord's  estate,  with  a  village  or  town- 
ship upon  it,  under  his  jurisdiction,  and  held  in  the  pecul- 
iar system  of  serfdom  known  as  villeinage. 

Passing  now  to  the  internal  economic  constitution  of 
one  of  these  manors,  and  leaving  the  legal  difficulties  on 
one  side,  we  observe  that  the  arable  land  was  divided  into 
the  lord's  demesne  and  the  land  in  villeinage.  The  whole 
of  the  arable  land  was  in  three  great  open  fields,  and  the 
demesne  land  was  interspersed  with  the  villein's  land. 
For  the  present  purpose  liberi  homines  may  be  omitted, 
and  we  may  observe  that  there  were  three  classes  of  ten- 
ants in  villeinage,  namely,  villani  (villeins  proper),  cotarii 
or  bordarii  (cottagers),  and  servi  (slaves).3  The  chief 

1  In  this  brief  sketch  I  have  followed,  in  the  main,  Mr.  Seebohm,  with 
indications  of  the  principal  points  of  divergence  in  other  writers.  I  have 
also  availed  myself  of  my  article  on  "  Agricultural  Communities,"  in 
Palgrave's  Dictionary. 

-  (7.  Madox,  Exchequer. 

8  On  the  accurate  meanings  of  the  terms  and  their  derivations,  see 
Vinogradoff,  Ch.  V.,  Essay  I. :  "  An  investigation  into  the  legal  aspect  of 
villeinage  discloses  three  elements  in  its  complex  structure.  Legal  theory 
and  political  disabilities  would  fain  make  it  all  but  slavery  ;  the  manorial 


284  PRINCIPLES  OF  POLITICAL  ECONOMY. 

interest  attaches  to  the  villeins.  The  typical  villein  hold- 
ing was  a  virgate  or  yard-land,  and  a  virgate  normally 
consisted  of  thirty  acres,  namely,  ten  of  the  long-acre  strips 
in  each  of  the  three  great  open  fields.  It  has  been  calcu- 
lated l  that  about  5,000,000  acres  were  under  the  plough 
in  the  counties  named  in  the  survey,  about  half  being  held 
by  the  villeins. 

The  normal  virgate  was  an  indivisible  bundle  of  strips 
of  land  passing  with  the  homestead  by  re-grant  from  the 
lord  to  a  single  successor.  There  were  also  rights  to  use 
of  meadow  and  waste.  The  virgates  with  their  home- 
steads were  sometimes  called  for  generations  by  the  family 
name  of  the  holder.  The  central  idea  of  the  system  was 
to  keep  up  the  services  of  various  kinds  due  to  the  lord  of 
the  manor,  and  the  virgate  was  a  typical  family  holding. 
The  services  consisted  of  so  much  week-work,  generally 
three  days,  an  uncertain  quantity  of  boon-work  (adprecem, 
precarious),  at  the  will  of  the  lord,  and  certain  payments, 
occasionally  of  money,  but  more  frequently  in  kind. 
There  were  also  restrictions  upon  the  personal  freedom 
of  the  villeins,  e.g.,  the  lord's  license  must  be  obtained  on 
the  marriage  of  a  daughter,  or  the  sale  of  an  ox,  etc.,  and 
no  one  could  leave  the  land  without  the  lord's  assent. 

The  normal  outfit  of  the  villein  was  a  pair  of  oxen,  and 
the  ploughing  was  usually  done  with  a  team  of  eight  oxen. 
Thus,  even  so  far  as  the  beasts  were  concerned,  the  co-op- 
eration of  at  least  four  villeins  was  required.  We  find, 
also,  that  certain  craftsmen  held  their  virgates  in  virtue  of 
their  services  to  the  village,  and  the  principal  wants  of  the 
community  were  satisfied  by  its  own  labour.  Everywhere 
and  in  everything  custom  was  in  force  limiting  the  nature 
and  amount  of  the  services,  and  prescribing  the  times  and 
methods  of  cultivation.  The  principal  differences  between 
the  English  village  community  at  the  Conquest  and  at  the 

system  ensures  it  something  of  the  character  of  the  Roman  colonatus ; 
there  is  a  stock  of  freedom  in  it  which  speaks  of  Saxon  tradition." 
1  Seebohm,  p.  102. 


DISTRIBUTION.  285 

time  of  the  Black  Death  (A.D.  1349),  are  found  to  be  in  the 
gradual  break-up  of  these  overpowering  customs,  and  the 
increasing  scope  given  to  individual  enterprise  and  variety. 
The  nature  of  the  movement  is  shown  by  the  increasing 
irregularity  of  the  holdings,  and  the  departure  from  the 
normal  type,  by  the  progressive  limitation  of  the  services 
demanded,  and,  above  all,  by  the  substitution  of  money 
payments  for  these  services  and  payments,  in  kind.  This 
commutation  in  the  mode  of  rendering  tribute  to  the  land- 
owner was  the  most  potent  cause  of  economic  progress  in 
the  mediaeval  period.1  By  the  time  of  the  Black  Death 
the  option,  at  any  rate  of  money  payments,  had  become 
usual.  The  land-owner  found  his  advantage  in  the  greater 
efficiency  of  hired  labour,  and  the  villein  had  the  power  of 
benefiting  himself  by  exceptional  industry. 

For  a  long  time,  however,  the  customary  methods  of 
cultivation  prevailed,  and,  as  pointed  out  above,  the  open 
fields  remained  down  to  the  close  of  the  last  century.  The 
principal  point  to  observe  is  that,  starting  with  the  Con- 
quest, economic  and  agricultural  improvement  has  been 
closely  connected  with  the  disintegration  of  the  village 
community.  The  nature  of  this  movement  is,  however, 
often  overlooked,  because  a  comparison  is  made  at  differ- 
ent times  between  different  parts  of  the  social  scale,  the 
modern  farm  labourer  being  compared  to  the  villein  with 
the  virgate,  to  the  apparent  disadvantage  of  the  former,  in 
spite  of  serfdom.  But  the  true  counterpart  of  the  modern 
labourer  is  the  mediaeval  slave,  and  the  villein  corre- 
sponds to  the  modern  small  farmer  or  land-owner. 

§  6.  Origin  of  English  Village  Communities.  When  we 
go  back  beyond  the  Conquest  we  find  strong  evidence  of 
the  prevalence  in  the  eastern  districts  of  Britain  of  these 
village  communities  in  serfdom  under  manorial  lords, 
though  the  points  of  similarity  are  at  first  disguised  by  the 

1  Cf.  Vinogradoff,  Essay  I.,  Ch.  VI. ;  Thorold  Rogers'  Six  Centuries, 
Ch.  VIII.  ;  Cunningham's  Groicth  of  Industry,  Vol.  I. ,  Bk.  II.  See 
also  infra,  next  chapter. 


286  PRINCIPLES  OF  POLITICAL  ECONOMY. 

difference  of  language.  There  seems,  however,  little  doubt 
that,  whatever  may  have  happened  at  the  time  of  the 
Saxon  invasion,  and  in  the  dark  period  which  followed 
after  the  departure  of  the  Romans,  as  soon  as  the  Saxons 
were  settled  they  developed  (or  adapted)  the  essential 
economic  features  of  the  manor.1  It  is  at  this  point  that 
the  principal  controversy  arises.  The  older  view,  generally 
associated  with  the  name  of  Yon  Maurer,  was  that  the 
Saxons  imported  into  this  island  the  fully  developed  mark 
system.  The  members  of  the  mark  were  freemen,  and  in 
their  assemblies  decided  on  points  of  interest  to  the  com- 
munity. The  arable  land  was  divided,  and  the  portions  of 
meadow  were  allotted  by  popular  vote.  According  to  this 
view  the  village  community  in  historical  Saxon  times  had 
degenerated  from  this  original  type,  the  overlordship  of  a 
single  individual  having  taken  the  place  of  the  free  as- 
sembly of  equals.  Against  this  view,  however,  Mr.  See- 
bohm  has  made  out  a  very  strong  case.  His  principal 
points  are  that  the  Saxons  in  their  own  homes  do  not 
appear  to  have  cultivated  land  on  the  three-field  system ; 
that  as  soon  as  historical  evidence  is  available  we  find  the 
closest  analogies  between  the  agricultural  systems  in 
Saxon-England  and  that  in  the  Romano-Teutonic  portion 
of  southern  Germany;  that  there  is  no  sufficient  time 
allowed  for  the  full  development,  independently,  of  the 
manorial  from  the  mark  system,  and  that  there  is  no  reason 
to  suppose  that  the  Saxons  exterminated  the  inhabitants 
and  treated  the  land  as  if  it  were  virgin  forest.2 

The  conclusion  is,  that,  to  a  great  extent,  the  Saxons 
simply  adopted  the  system  which  they  found  already 
established  by  the  Romans,  during  their  four  centuries  of 
occupation.  This  opinion  is  supported  by  the  close  anal- 
ogy between  the  conditions  of  tenure  of  the  Romano- 
British  colonus  and  the  later  villani?  Thus  the  Roman 

1  Cf.  the  Laws  of  Ine,  quoted  by  Mr.  Seebohm,  p.  142. 

2  Cf.  Coote's  Romans  in  Britain. 
8  Seebohm,  p.  267. 


DISTRIBUTION.  287 

villa  is  made  to  contribute  some  of  the  most  important 
elements  of  the  late  English  village.  But  now  the  ques- 
tion arises:  Whence  were  the  elements  of  the  Roman 
system  in  Britain  derived?  Did  the  Romans  themselves 
import  their  own  agricultural  customs  and  impose  them 
upon  the  inhabitants,  or  did  they  adapt  what  they  found 
to  their  own  use?  It  is  known  from  other  sources  that 
the  most  usual  course  of  the  Romans  in  their  policy  of 
parcere  subjedis  was  to  amalgamate,  as  far  as  possible, 
foreign  customs  with  their  own.  It  is  known,  also,  from 
historical  evidence,  that  before  the  Roman  invasion,  in 
many  parts  of  Britain  there  was  a  settled  system  of  agri- 
culture, notably  in  the  south-east,  and  it  would  be  in 
accordance  with  their  usual  practice  for  the  Romans  to 
take  what  they  found  as  the  basis  of  their  own  methods 
of  cultivation  and  of  extracting  revenue  from  the  people. 
We  are  thus  thrown  still  further  back,  in  order  to  discover 
the  elements  of  this  system,  which  existed  in  Britain  be- 
fore the  Roman  invasion,  and  in  the  search  we  discover, 
following  the  lines  of  Mr.  Seebohm's  investigation,  that 
through  the  whole  period,  from  pre-Roman  to  modern 
times,  there  were  two  parallel  systems  of  rural  economy, 
the  essential  features  of  which  were  preserved  in  spite  of 
the  Roman,  English,  and  Norman  invasions,  namely,  the 
village  community  in  the  east,  and  the  tribal  community 
in  the  west,  of  the  island.  Neither  system  was  introduced 
into  Britain  during  a  historical  period  of  more  than  2000 
years.  The  village  community  of  the  east  was  connected 
with  a  settled  system  of  agriculture ;  the  equality  and 
uniformity  of  the  holdings  were  signs  of  serfdom,  and  this 
serfdom  again  had  itself  arisen  from  a  lower  stage  of  slav- 
ery. The  mark,  with  its  equal  freemen,  so  far  as  this  part 
of  Britain  is  concerned,  is  thus  an  untenable  hypothesis. 
We  have  equality  and  community,  it  is  true,  but  they  are 
based  not  on  freedom,  but  on  organised  serfdom.  On  the 
other  hand,  the  tribal  system,  which  prevailed  in  the  west 
of  Britain  (especially  Scotland  and  Wales),  and  also  in 


288  PRINCIPLES   OF   POLITICAL   ECONOMY. 

Ireland,  was  connected  with  an  earlier  stage  of  economic 
development,  mainly  of  a  pastoral  kind.  The  tribal  com- 
munity was  bound  together  by  the  strong  ties  of  blood- 
relationship  between  free  tribesmen.  This  free  equality 
involved  an  equal  division  amongst  the  tribesmen,  accord- 
ing to  various  tribal  rules,  and  the  custom  of  subdivision 
has  survived  to  our  own  day  in  the  "  run-dale  "  or  "  run- 
rig  "  system  of  the  west  of  Scotland  and  Ireland.  In  this 
brief  summary  many  interesting  points  have  been  omitted, 
and  many  certainly  require  further  investigation.  The 
origin  of  the  size  and  shape  of  the  long-acre  strips,  the 
original  object  of  the  irregular  scattering,  and  the  way  in 
which  the  system  became  solidified  in  such  an  inconvenient 
form  for  modern  requirements,  can  only  be  alluded  to. 
Perhaps  the  most  remarkable  general  result  is  that  co- 
operation, which  we  are  accustomed  to  regard  as  a  purely 
modern  product,  is  very  ancient ;  but  whether  this  co-opera- 
tion arose,  unlike  most  other  ancient  institutions,  purely 
from  rational  elements  and  from  motives  of  economy  and 
convenience,  has  not  yet  been  the  subject  of  sufficient  in- 
vestigation. Certainly,  hitherto  the  principal  danger  in 
reconstructing  primitive  societies  has  been  to  import  too 
readily  modern  ideas,  and  not  to  allow  sufficiently  for 
what  we  should  now  call  irrational  elements. 

§  7.  Summary  of  Results,  The  survey  of  village  com- 
munities brings  into  prominence  certain  general  features 
which  seem  to  be  beyond  the  reach  of  controversy  :  (1) 
Whether  in  their  origin  they  were  in  the  main  free  or 
servile,  whether  the  original  type  is  the  manor  or  the 
mark,  —  and  it  is  probable  that  under  different  conditions 
different  elements  were  predominant,  —  in  the  course  of 
time  they  readily  lent  themselves  to  some  form  of  external 
domination.  Thus,  in  Russia  and  in  India  the  collectors 
of  taxes  from  the  communes  gradually  assumed  the  rights 
of  overlordship ;  and  in  England,  if  the  village  communi- 
ties were  ever  free,  it  was  at  a  very  remote  period,  and 
they  were  absorbed  in  the  feudal  manors.  (2)  It  is 


DISTRIBUTION.  289 

only  in  the  non-progressive  nations  that  they  have  sur- 
vived. In  England,  in  particular,  the  course  of  develop- 
ment has  been  marked  by  the  disintegration  of  the  various 
customs  which  had  their  origin  in  ownership  and  cultiva- 
tion in  common.  (3)  Thus,  the  system  of  private  prop- 
erty and  freedom  of  contract,  as  regards  land,  stands  out 
as  the  natural  result  of  economic  evolution.1 

It  will  appear  in  the  next  chapter  that  the  examination 
of  feudalism,  already  to  some  extent  anticipated,  leads  to 
a  similar  conclusion. 

1  The  reader  may  consult,  for  the  latest  results,  the  careful  work  of  Dr. 
Andrews  on  the  Old  English  Manor.  Mr.  Garnier's  History  of  the  Eng- 
lish Landed  Interest  shows  an  unusual  combination  of  historical  reading 
and  practical  knowledge. 


CHAPTER  VII. 

FEUDALISM. 

§  1.  On  the  Economic,  as  distinguished  from  other, 
Aspects  of  Feudalism.  As  the  system  on  which  the  whole 
structure  of  mediaeval  society  rested,  feudalism  is  of  fun- 
damental importance  in  constitutional  history  as  determin- 
ing the  form  of  government  and  the  relations  of  governors 
and  governed.  It  is  of  great  importance  also  in  general 
history,  for  the  wars  and  policy  of  the  state  were  often  de- 
termined by  feudal  considerations.  In  the  history  of  law 
the  feudal  system  is  for  a  long  period  predominant,  and 
there  are  many  technicalities  in  existing  laws  which  can- 
not be  understood  without  going  back  to  their  roots  in 
feudalism. 

For  the  present  purpose,  however,  we  have  only  to  con- 
sider the  system  in  its  economic  bearings ;  that  is  to  say, 
as  involving  a  peculiar  organisation  in  the  production  and 
distribution  of  wealth.  An  examination  of  feudalism 
from  this  point  of  view  is  instructive  in  two  respects:  first, 
because  it  offers  a  striking  contrast  to  the  present  indus- 
trial system,  and  secondly,  because  it  broke  down  mainly 
under  the  pressure  of  the  economic  forces  which  have 
gradually  become  dominant  in  progressive  nations. 

The  close  connection  with  the  subject  of  this  book  may 
be  illustrated  by  reference  to  the  origin  of  the  term.  The 
word  feudum,  fief,  or  fee,  is  derived  from  the  German  word 
for  cattle,1  the  secondary  meaning  being  goods,  especially 
money  and  house  property  in  general.2 

1  Vieh,  —  Anglo-Saxon  feoh. 

2  Stubbs'  Constitutional  History,  Vol.  I.,  p.  251,  note. 

290 


DISTRIBUTION.  291 

§  2.  Principal  Characteristics  of  Feudalism.1  In  its 
essence  the  feudal  system  was  a  great  military  organisa- 
tion. The  typical  feudal  state  was  a  nation  ready  to  take 
arms.  The  king  was  like  the  commander-in-chief ;  his  im- 
mediate feudal  tenants  were  generals,  each  of  whom  not 
only  commanded  but  equipped  his  contingent.  These  con- 
tingents again  were  made  up  by  the  contribution  of  lesser 
tenants,  of  whom  some  were  bound  to  take  the  field  with 
a  certain  number  of  men  and  horses,  some  only  to  serve  in 
person.  This  part  of  the  system  was  antecedent  to  feudal- 
ism, and  was  almost  universal  in  early  societies.  But  the 
peculiarity  of  the  feudal  system  was  that  the  type  of  mili- 
tary organisation  was  fixed  and  solidified  by  being  made 
territorial.  Land,  as  the  ultimate  source  of  wealth,  and 
at  that  time  almost  the  only  direct  one,  was  regarded  by 
the  state  according  to  its  capacity  for  supporting  the 
defence  of  the  nation.  Hence,  military  service  in  some 
form  —  either  personal,  or  definite  provision  for  it — was 
the  essence  and  condition  of  the  landholder's  title.  Ac- 
cording to  this  view,  the  feudal  tenant  is  best  regarded  as 
an  officer  settled  upon  land,  rather  than  as  the  owner 
of  land;  that  is  to  say,  we  shall  find  the  conception  of 
military  obligation  taking  the  place  at  present  held  by 
contract.2 

This  mode  of  regarding  the  feudal  system,  in  which  I 
have  followed  Sir  F.  Pollock,  must  be  considered  as  in- 
tended to  bring  into  prominence  certain  typical  features 
and  structural  arrangements.  It  must  not  be  supposed 
that  the  feudal  system  was  ever  actually  established  on 
the  simple  lines  here  laid  down.  Historically,  it  had  a 
complex  origin,  and  from  the  first  it  was  modified,  in  dif- 
ferent countries,  by  various  social  forces.  A  few  points 
may  be  noticed  bearing  upon  the  history  of  feudalism  in 
England. 

Under  the  Anglo-Saxons  the  general  character  of  the 

1  Pollock's  Land  Laws,  p.  52,  and  Stubbs,  Vol.  I.,  Ch.  IX. 

2  Cunningham's  Groirth  of  Industry,  Vol.  I.,  p.  130. 


292  PRINCIPLES   OF  POLITICAL   ECONOMY. 

development  has  been  described  by  Stubbs  l  as  a  movement 
from  the  personal  to  the  territorial  organisation  ;  in  the 
former  the  free  man  of  pure  blood  has  a  right  to  share  in 
the  land  of  his  race,  the  king  is  king  of  the  race,  the  host 
is  the  people  in  arms,  the  courts  are  the  people  in  council : 
in  the  latter  stage  of  development  possession  of  land 
usurps  the  place  of  freedom  of  blood,  although  remnants 
of  the  old  influences  are  still  left. 

The  country,  at  the  Conquest,  was  thus  well  fitted  for 
the  imposition  of  the  feudalism  which  the  Norman  brought 
"  full  grown  from  France."  This  institution  was  derived 
from  two  great  sources,  technically  known  as  the  benefi- 
cium  and  commendation.  The  beneficiary  system  arose 
partly  from  gifts  of  land  by  the  kings  to  their  kinsmen 
and  retainers  under  the  condition  of  fidelity,  and  partly 
from  the  surrender  by  land-owners  of  their  estates  to 
churches  or  powerful  men  to  be  received  back  and  held 
by  them  as  tenants  for  rent  and  service.  By  the  practice 
of  commendation  the  inferior  put  himself  under  the  per- 
sonal care  of  a  superior  lord,  but  without  altering  his  title 
to  his  estate ;  he  became  a  vassal  and  did  homage  by  plac- 
ing his  hands  between  those  of  his  lord.  The  union  of 
the  land  tenure  of  the  former  element  —  the  beneficium  — 
with  the  personal  connexion  of  the  latter  —  commendation 
—  completed  the  idea  of  feudal  obligation.  The  rights  of 
defence  and  service  were  supplemented  by  the  right 
of  jurisdiction  ;  the  lord  judged  as  well  as  defended  his 
vassal,  and  the  vassal  did  suit  as  well  as  service  to  his 
lord. 

It  is  evident  from  the  general  principles  of  feudalism 
that  the  great  danger  is  the  weakness  of  the  central 
authority,  or,  in  other  words,  the  tendency  of  the  feudal 
lords  to  become  practically  independent  of  the  king.  In 
England  the  reign  of  Stephen  furnishes  a  striking  example 
of  the  reality  of  this  danger,  and  shows  how  much  the  per- 
sonal character  of  the  monarch  affected  the  whole  national 
i  Vol.  I.,  p.  166. 


DISTRIBUTION.  293 

well-being.1  On  the  other  hand,  England  is  also  the  best 
example  of  the  subjugation  of  the  disruptive  tendencies  of 
feudalism  by  a  combination  of  the  forces  of  royal  authority 
and  popular  love  of  freedom. 

It  seemed  advisable  to  make  this  very  brief  survey  from 
the  historical  and  political  standpoint,  in  order  that  the 
effects  of  the  more  purely  economic  elements  might  be 
more  clearly  appreciated.  Under  the  feudal  system  we 
have  as  foundations  a  peculiar  land  system  and  a  peculiar 
form  of  personal  obligation.  In  neither  was  the  idea  of 
economic  advantage  predominant,  as  such  advantage  is 
understood  in  the  present  time.  In  its  ideal  form  the 
personal  tie  was  that  of  devoted  attachment,  as  shown  in 
the  poetry  of  chivalry  ;  and,  similarly  regarded,  the  land 
system  rested  upon  military  obedience. 

§  3.  Peculiar  Restrictions  on  the  Owner  ship  of  Land  under 
Feudalism.  It  follows  at  once  that  some  of  the  most 
important  characteristics  of  ownership  of  land  in  the 
modern  industrial  system  were  opposed  to  the  general 
principles  of  feudalism,  and  were  logically  inadmissible. 
Take,  for  example,  freedom  of  alienation  or  the  right  to 
sell  an  estate.  Under  strict  feudalism  there  was  no  room 
for  it.  The  tenant,  by  military  service,  as  Sir  F.  Pollock 
observes,  was  no  more  entitled  to  put  a  newcomer  in  his 
place  than  a  soldier  on  duty  to  assign  his  place  to  another. 
It  is  true  that  feudalism  of  this  strict  type  soon  began  to 
decay,  or  rather,  the  ideal  was  never  completely  attained ; 
but  for  the  present  we  are  concerned  with  principles,  and 
it  is  sufficient  to  notice  that  in  England  at  the  present  day 
many  of  the  difficulties  in  the  transfer  of  land  may  be 
traced  to  this  characteristic  of  feudalism. 

Again,  freedom  of  disposal  by  will  was  still  more  repug- 
nant to  the  feudal  theory.  Logically  the  land  should 
revert  to  the  king  or  other  superior  for  the  appointment 
of  a  new  officer,  to  follow  the  original  analogy. 

1  The  influence  of  the  personal  element  has  been  justly  emphasised  by 
Dr.  Cunningham,  Growth  of  Industry,  Vol.  I.,  p.  130. 


294  PRINCIPLES  OF  POLITICAL   ECONOMY. 

In  the  same  way  the  right  of  inheritance  falls  to  the 
ground,  if  feudalism  is  regarded  from  the  purely  military 
standpoint.  But  historically  feudalism  was  not  only,  as 
already  shown,  of  mixed  origin,  but  it  was  modified  by 
other  institutions,  and  notably  by  that  of  the  family. 
In  the  ancient  types  of  the  family,  whilst  there  was  no 
room  for  alienation  or  bequest,  the  right  of  inheritance  was 
fundamental,  although  different  modes  were  adopted  in 
various  circumstances.  The  rule  that  came  to  be  general 
under  feudalism  was  that  of  primogeniture.  The  origin 
is  obscure,1  but  once  it  was  adopted  there  are  obvious 
reasons  why  it  should  become  general  and  stringent.  To 
divide  a  great  feudal  estate  would  be  like  dividing  the 
command  of  an  army  corps,  and  when  division  did  not 
take  place  it  was  natural  that  the  eldest  son  should  take 
the  command,  as  being  in  most  cases  the  strongest. 

So  strongly  did  the  law  of  primogeniture  take  root  in 
England  that  it  was  applied  in  time  to  estates  in  land 
unconnected  with  military  tenures,2  and  in  case  of  intes- 
tacy it  still  prevails  in  England  as  regards  all  real  prop- 
erty. 

It  has  been  observed  by  Thorold  Rogers  3  that,  during 
the  early  Middle  Ages  the  effects  of  primogeniture  on  land 
were  modified  by  the  custom  which  prevailed,  of  the  great 
land-owners  cultivating  their  own  estates  at  their  own 
risk.  On  ordinary  arable  land,  in  the  thirteenth  century, 
he  states  that  stock  was  three  times  the  value  of  the  land, 
when  there  were  adequate  implements  and  cattle  (the  pro- 
portions being  6s.  to  8s.  per  acre  for  the  land,  and  18s.  to 
20«.  for  the  capital). 

Now  the  younger  sons  shared,  unless  deprived  by  will, 
in  this  personal  estate,  and  to  keep  the  estate  in  working 

1  Cf.  Maine's  Ancient  Law. 

2  Copy-holds  and  socage  land,  for  example.    In  these  cases  the  adop- 
tion was  only  gradual.     In  Kent,  to  this  day,  gavel-kind  (equal  division) 
prevails.     Cf.  Elton's  Origins.     Cf.  Pollock's  Land  Laws,  Note  D. 

8  Six  Centuries,  p.  51. 


DISTRIBUTION.  295 

order  the  eldest  son  would  be  obliged  to  make  some  agree- 
ment with  the  younger,  —  probably  at  first  by  sub-in- 
feudation. 

To  return  to  the  general  question  of  feudal  inheritance, 
it  must  be  added  that  the  right  only  existed  when  there 
was  mention  of  heirs  in  the  original  grant,  and  in  any  case 
the  heir  did  not  succeed  as  a  matter  of  free  and  common 
right,  but  he  owed  the  lord  a  payment  called  relief.  Here 
again  we  have  survivals  at  the  present  day.1 

One  other  technicality  which  had  important  conse- 
quences must  be  noticed.  In  general,  in  a  grant  in  which 
heirs  were  mentioned,  some  particular  kind  (e.g.,  heirs 
male  of  his  body)  was  prescribed,  and  in  case  of  failure 
the  estate  reverted  to  the  superior.  It  is  to  this  practice 
that  we  are  mainly  indebted  for  entails. 

§  4.  Feudalism  and  the  Towns  and  Cities.  The  feudal 
system  laid  its  hand  on  the  town  no  less  firmly  than  on  the 
country,  although  it  was  sooner  compelled  to  relax  its 
grip.  As  in  the  preceding  section,  for  the  purpose  of 
illustration,  reference  may  be  made  to  England. 

It  is  only  with  an  effort  we  can  picture  the  economic 
condition  of  the  towns  in  England  in  the  early  mediaeval 
period.  At  the  present  day,  any  one  can  settle  in  any 
town  he  pleases,  establish  any  manufacture,  practise  any 
industry,  buy  or  sell  anything  that  he  likes.  In  the  Middle 
Ages  it  was  not  so ;  towns  in  the  same  country  were  rela- 
tively more  exclusive  than  independent  countries  are  at 
present.  This  mutual  exclusiveness  was  closely  connected 
with  feudalism,  and  to  the  same  source  must  be  attributed 
many  of  the  burdens  and  restrictions  which  were  only  com- 
pletely destroyed  after  the  struggle  of  centuries.2 

From  the  time  of  the  Norman  Conquest  the  cities  and 
towns  of  England  were  vested  either  in  the  crown  or  else 
in  the  clergy  or  in  the  baronage,  and  great  men  of  the 

1  Compare,  for  example,  the  system  of  feuing  land  in   Scotland  for 
building  purposes. 

2  Compare  Adam  Smith,  Bk.  III.,  Ch.  III. 


296  PRINCIPLES  OF  POLITICAL  ECONOMY. 

laity 1 ;  that  is  to  say,  the  king  was  immediate  lord  of  some 
towns,  and  particular  persons,  either  of  the  clergy  or  laity, 
were  immediate  lords  of  other  towns.  Of  those  vested  in 
the  king  some  were  by  one  title  and  some  by  another ;  some 
he  held  as  the  ancient  inheritance  of  the  crown,  others  had 
lapsed  to  him  by  escheat  (for  want  of  heirs),  some  he  had 
obtained  by  forfeiture,  by  attainder,  by  exchange,  and  by 
the  dissolution  of  religious  houses.  The  test  of  ancient 
inheritance  was  a  reference  to  Domesday,  and  the  differ- 
ence was  of  importance  with  regard  to  the  exaction  of  dues. 
A  very  great  number  of  towns  and  cities  were,  at  the 
time  of  the  survey,  vested  in  the  crown,2  arid  when  a  king 
spoke  of  his  towns  it  was  no  mere  political  reference,  —  he 
regarded  them  as  sources  of  revenue  equally  with  his  great 
landed  estates.  The  following  passages  from  Madox3  give 
a  graphic  description  of  the  meaning  of  the  king's  over- 
lordship.  "  When  the  king  was  seised  of  a  particular  city 
or  town  in  demesne,  he  had  a  complete  seisin  of  it  with  all 
its  parts  and  adjuncts.  He  was  lord  of  the  soil,  to  wit,  of 
all  the  land  within  the  site  and  precincts  of  the  town  ;  of 
all  the  burgage  houses,  sheds,  stalls,  and  buildings  erected 
on  the  said  land ;  he  was  lord  and  proprietor  of  the  profits 
(if  any)  of  aldermanries ;  the  herbage  and  productions  of 
the  earth,  profits  of  fairs  and  markets;  pleas  and  per- 
quisites of  courts ;  in  a  word,  of  all  issues,  profits,  and  ap- 
purtenances of  the  city  or  town  of  any  kind  which  had  not 
been  aliened  by  the  king  or  some  of  his  ancestors.  But 
sometimes  the  crown  thought  fit  to  grant  some  part  of  a 
city  or  town,  or  some  profit  or  appurtenant  thereof  to  a 
private  man  or  to  a  religious  house.  By  which  means  it 
sometimes  came  to  pass  that  the  property  of  a  city  or  town 
was  divided  into  a  half  or  third,  or  other  part  or  parts,  or 
perhaps  certain  of  the  profits  of  the  city  or  town  became 
severed  from  the  corpus  civitatis" 4 

1  Madox,  Firma  Burgi,  p.  4.     Cunningham,  Vol.  I.,  p.  197. 

2  Cf.  Madox,  p.  7.  8  Ibid.,  p.  14. 

4  It  is  hardly  necessary  to  observe  that  the  object  of  the  above  quota- 


DISTRIBUTION.  297 

It  is  to  be  understood,  however,  as  the  same  writer  ex- 
presses it,  that  in  former  times  the  kings  were  not  wont  to 
reserve  to  themselves  a  rent  or  ferme  out  of  an  airy  or  bar- 
ren franchise.  The  yearly  proceeds  arose  out  of  certain 
definite  rents  and  profits,  and  it  was  only  if  these  fell  short 
that  a  general  collection  was  made.  The  revenues  of  the 
towns  included,  besides  these  rents,  stallage  (rent  stalls 
in  markets)  and  other  market  dues,  tolls,  fines,  forfeitures 
of  criminals  and  other  transgressors,  and  various  casual- 
ties. 

The  natural  correlative  of  the  manorial  overlordship  of 
the  towns  was  the  communal  responsibility  of  their  inhabi- 
tants. This  is  shown  not  only  in  the  payment  of  regular 
or  customary  dues,  but  is  still  more  noticeable  in  excep- 
tional exactions.  Thus,  a  corporate  community  might  be 
answerable  for  the  trespass  or  debt  of  particular  persons, 
members  of  it,  and  particular  members  answerable  for  the 
debt  or  wrong-doing  of  the  whole  community.1  Thus,  as 
late  as  A.D.  1305,  Edward  I.  entrusted  a  French  hostage 
to  the  men  of  Winchester  to  keep,  but  they  let  him  escape. 
Thereupon,  the  king  commanded  the  mayor  and  bailiffs, 
together  with  six  of  the  more  discreet  and  substantial  citi- 
zens, to  appear  for  the  community  before  his  council,  and 
they  were  imprisoned.2 

Again,  particular  persons  were,  for  several  centuries, 
charged  to  the  king  with  a  debt  due  to  him  from  their 
corporate  community.  A  common  example  is  when  towns 
are  charged  with  having  acquired  the  property  of  a  felon 
or  other  persons  forfeited  to  the  king,  in  which  case  the 
king  seems  to  have  taken  any  citizen  on  whom  he  could 
conveniently  lay  hands. 

On  the  other  hand,  it  must  be  observed,  that  this  com- 
munal responsibility  was  associated  with  a  certain  measure 

tion  is  to  give  prominence  to  the  feudal  elements  in  the  constitution  of 
mediaeval  towns.     There  were,  from  very  early  times,  important  modifi- 
cations due  to  other  influences.     Cf.  Stubbs,  Vol.  I.,  Ch.  XI. 
1  Madox,  p.  154.  2  Ibid.,  p.  156. 


298  PRINCIPLES  OF  POLITICAL  ECONOMY. 

of  self-government,  and,  under  the  Norman  kings,  we  find 
several  instances  of  towns  being  fined  for  setting  up  a  com- 
mune without  warrant,  which  proves  that  this  rudimentary 
combination  was  regarded  as  a  privilege. 

The  kings,  however,  soon  found  it  to  their  interest  to 
make  alliance  with  the  towns  against  the  barons ;  and  the 
charters  became  more  and  more  favourable.1 

§  5.  Economic  Causes  of  the  Decay  of  Feudalism  — 
(a)  the  Increase  of  Security.  Just  as  feudalism  was  of 
mixed  origin,  so  it  was  broken  down  by  a  variety  of  in- 
fluences, —  constitutional,  legal,  and  religious,  as  well  as 
those  more  properly  styled  economic.  These  last,  how- 
ever, were  of  primary  importance,  and,  as  far  as  possible, 
they  will  be  considered  apart  from  the  other  factors. 
Although  it  is  clear,  from  the  very  nature  of  the  feudal 
system,  that  we  cannot  expect  any  complete  isolation  of 
the  economic  phenomena,  still,  as  Adam  Smith  2  has  shown 
in  treating  the  same  problem,  the  other  influences  may 
themselves  be  regarded  from  the  economic  standpoint. 
The  point  is  well  illustrated  by  the  first  of  the  great 
forces  which  tended  to  break  up  feudalism,  namely,  the 
increase  in  security.  Here,  the  importance  of  the  consti- 
tutional and  legal  aspects  cannot  be  overlooked.  In  Eng- 
land, for  example,  the  first  blow  to  strict  feudalism  was 
given  by  William  I.,  at  the  great  council  of  Salisbury, 
A.D.  1086,  at  which  all  holders  of  land  swore  allegiance  to 
the  king.  This  event,  which  used  to  be  regarded  as  the 
formal  establishment  of  feudalism,  really  marked  the  be- 
ginning of  its  downfall.  "  It  is,"  according  to  Stubbs, 
"a  measure  of  precaution  taken  against  the  disintegrating 
power  of  feudalism,  providing  a  direct  tie  between  the 
sovereign  and  all  freeholders,  which  no  inferior  relation 
existing  between  them  and  the  mesne  lords  would  justify 
them  in  breaking."  3  It  thus  prepared  the  way  for  a  system 
of  law  and  justice  applicable  to  the  whole  country. 

1  Madox,  p.  242.  2  Adam  Smith,  Bk.  III.,  Ch.  III. 

a  Cf.  Stubbs,  Vol.  I.,  Ch.  IX.,  p.  266. 


DISTRIBUTION.  299 

The  mere  exaction,  however,  of  an  oath  of  allegiance 
would,  in  itself,  have  been  of  little  consequence,  unless 
supported  by  more  substantial  guarantees.  In  its  ideal 
form  of  a  great  military  organisation,  feudalism  already 
exacted  perfect  obedience  and  fidelity  to  the  central 
authority,  although,  in  all  but  the  highest  ranks,  the  mode 
of  expression  was  indirect.  But,  as  Adam  Smith 1  observes, 
the  authority  of  government,  under  feudalism,  was  too 
weak  in  the  head,  and  too  strong  in  the  inferior  members, 
and  the  excessive  strength  of  the  inferior  members  was  the 
cause  of  the  weakness  of  the  head.  Feudalism,  with  its 
regular  train  of  subordination,  from  the  king  to  the  lowest 
retainer,  ought  to  have  strengthened  the  authority  of  the 
king  and  weakened  that  of  the  great  proprietors ;  but  it 
could  not  do  either  sufficiently  for  establishing  order  and 
good  government  among  the  inhabitants  of  the  country, 
because  it  could  not  alter  sufficiently  that  state  of  prop- 
erty and  manners  from  which  the  disorders  arose. 

William  I.,  however,  and  his  strongest  successors  suc- 
ceeded in  keeping  in  check  the  disruptive  tendencies,  and 
to  some  extent,  at  any  rate,  in  performing  the  first  function 
of  government  from  the  economic  standpoint;  they  did 
something,  namely,  towards  providing  a  fair  field  for  the 
play  of  economic  forces ;  they  led  the  way,  no  doubt  un- 
consciously, and  actuated  by  other  motives,  to  the  substi- 
tution of  an  industrial  for  a  military  organisation.  The 
alliance  of  the  kings  with  the  towns  and  cities  was  of 
equal  importance  with  the  direct  suppression  of  the  powers 
of  the  great  barons,  in  the  establishment  of  that  degree  of 
security  which  is  necessary  for  the  development  of  trade 
and  commerce.2  "  Order  and  good  government,  and  along 
with  them  the  liberty  and  security  of  individuals,  were, 
in  this  manner,  established  in  cities  at  a  time  when  the 
occupiers  of  land  in  the  country  were  exposed  to  every 
sort  of  violence." J  In  other  countries,  especially  Italy  and 

i  Bk.  III.,  Ch.  IV.  2  Cf.  Cunningham. 

8  Adam  Smith,  p.  179. 


300  PRINCIPLES  OF  POLITICAL   ECONOMY. 

Switzerland,  the  cities  gradually  became  independent  re- 
publics, conquered  all  the  nobility  in  their  neighbourhood, 
obliged  them  to  pull  down  their  castles  and  live  like  other 
peaceable  inhabitants  in  the  city.  This  is  the  short  his- 
tory, says  Adam  Smith,  of  the  republic  of  Berne,  as  well 
as  of  several  other  cities  in  Switzerland,  and  it  is  also  the 
history  of  most  of  all  the  considerable  Italian  republics 
(except  Venice)  between  the  end  of  the  twelfth  and  the 
beginning  of  the  sixteenth  centuries. 

If  it  is  remembered  that  the  essence  of  feudalism  was 
a  military  organisation,  subject  to  chronic  mutiny  on  the 
part  of  the  superior  officers,  and  consequent  relapses  into 
anarchy  and  plunder,  it  is  plain  that  the  decay  of  the  sys- 
tem may  be  measured  by  the  growth  of  industrial  security. 
Laws  and  governments  no  doubt  did  something  to  provide 
room  for  this  growth,  but  the  vital  powers  and  nourish- 
ment were  derived  from  economic  agencies  operating 
silently  and  insensibly  below  the  surface. 

§  6.  The  Decay  of  Feudalism  —  (Jf)  Extension  of  Money 
Payments.  The  chief  agency  in  the  progress  of  society 
from  status  to  contract  has  undoubtedly  been  the  extended 
use  of  money,  the  substitution  of  money  payments  for 
various  kinds  of  services  and  obligations. 

Without  money,  exchange  cannot  be  the  fundamental 
principle  in  the  distribution  of  wealth ;  distribution  must 
necessarily  be  dominated  by  different  forms  of  authority. 
We  are  now  accustomed  to  speak  of  the  rigidity  of  early 
laws  and  customs ;  it  is  time  we  recognised  that  the  princi- 
pal loosener  of  this  rigidity  is  money.  The  history  of 
money  might  be  made  the  guiding  thread  to  the  history  of 
civilisation ;  money  has  destroyed,  or  helped  to  destroy,  the 
privileges  founded  on  birth,  superstition,  and  force  ;  money 
has  promoted,  or  helped  to  promote,  freedom  of  labour, 
reward  in  proportion  to  services,  and  equality  of  sacrifice 
in  taxation,  —  the  three  great  principles  in  which  ethics 
comes  into  closest  contact  with  economics.  The  clamour 
of  the  socialists  for  the  abolition  of  money  is  a  curious  illus- 


DISTRIBUTION.  301 

tration  of  the  way  in  which  incidental  evils  turn  the  atten- 
tion from  the  essential  benefits  of  any  institution.  There 
never  yet  was  power  for  good  which  might  not  in  some 
respects  be  turned  into  a  power  for  evil.  The  intention 
of  these  reflections  is  illustrated  and  justified  by  the  effects 
of  money  on  feudalism ;  here,  at  any  rate,  the  advantages 
altogether  outweighed  the  disadvantages. 

Under  strict  feudalism,  personal  military  service  was 
exacted,  —  service  of  so  many  days,  irrespective  of  the  time 
employed  in  getting  to  and  returning  from  the  seat  of  war. 
The  possessions  of  the  English  kings  abroad  rendered  this 
personal  service  very  burdensome.  Hence  a  commutation 
into  money  payments  was  desired  and  achieved.  This 
was  known  as  scutage.1  It  enabled  the  English  monarch 
to  maintain  a  force  of  picked  and  trained  volunteers,  and 
thus  strengthened  the  central  authority.  The  abuse  of 
this  power  by  John  was  one  of  the  causes  of  Magna 
Charta,2  and  indirectly  of  the  power  of  Parliament  over 
the  public  purse,  for  it  soon  became  evident  that  the  king 
must  not  be  allowed  to  claim  scutage  as  he  pleased,  on 
pretence  of  a  continental  war.  Another  important  effect 
is  pointed  out  by  Rogers.3  None  but  freeholders  (that  is 
to  say,  those  who  did  not  hold  their  land  only  by  villein 
services)  could  serve  in  the  national  militia,  but  servile 
birth  was  no  obstacle  to  enlistment  in  the  king's  army,  and 
by  this  path  a  serf  might  even  rise  to  knighthood. 

Scutage  applied  strictly  only  to  those  feudal  tenants 
who  held  immediately  (in  capite)  of  the  king,  but  they 
transferred  it  to  their  sub-tenants.  "  The  tenants,"  says 
Madox,4  "  paid  escuage  to  their  lord  to  enable  him  to  pay 
his  escuage  to  the  king,"  and  thus  the  effect  was  more 
general  than  might  at  first  sight  appear.  The  substitution 

1  Cf.  Madox,  Exchequer  (Ch.  XVI.),  for  full  account.     The  term  is 
derived  from  a  knight's  shield  (scutum}.    It  first  appears  in  the  time  of 
Henry  II.,  and  is  ascribed  to  Thomas  a  Becket,  A.D.  1159.     See  Rogers' 
Six  Centuries,  p.  29.     Stubbs,  Vol.  I.,  pp.  454,  456. 

2  Stubbs,  Vol.  I.,  p.  533.  »  Op.  cit.,  p.  32. 
*  Madox,  Exchequer,  p.  4G9. 


302  PRINCIPLES  OF  POLITICAL  ECONOMY. 

of  money  payments  for  produce  rents  of  various  kinds  was 
far  more  wide-reaching  in  its  influences,  and  the  process 
has  lasted  down  to  our  own  times.  In  England  this  spe- 
cies of  commutation  seems  to  have  begun  on  the  royal 
demesne  soon  after  the  Conquest.  A  graphic  description 
is  given  in  the  Dialogue  on  the  Exchequer  l  of  the  incon- 
veniences of  payment  in  kind,  especially  when  the  king 
was  engaged  in  foreign  wars,  and  also  of  .the  burdens  im- 
posed on  those  engaged  in  agriculture  by  these  exactions. 
As  with  scutage,  the  substitution  of  money  payments  was 
desired  on  both  sides. 

The  importance  of  the  adoption  of  a  money  economy 
is  still  better  shown  by  the  changes  that  occurred  in  the 
lowest  strata  of  the  feudal  system,  in  those  parts,  namely, 
in  which  feudalism  had  been  imposed  on  the  agricultural 
regime  derived  from  the  village  communities.2  At  first 
we  have  a  system  of  labour  rents.  The  villeins  held  their 
land  on  condition  inter  alia  of  performing  so  much  wrork 
for  the  lord  on  his  demesne,  and  of  rendering  other  ser- 
vices and  payments  in  kind.  Although  the  personal 
freedom  of  the  villein  was  much  restricted,  as  he  was 
subject  to  the  arbitrary  power  of  his  lord  in  many  ways, 
his  services  and  payments  in  the  nature  of  rent  were  fixed 
and  customary.  Gradually  these  customary  dues  became 
more  favourable,  but  the  most  favourable  change  of  all 
was  the  commutation  into  money  payments.  This  was 
effected  in  England  by  the  silent  operation  of  economic 
causes.  The  land-owners  and  their  bailiffs  found  that 
forced  labour  was  inefficient  and  not  readily  adjusted  to 
the  needs  of  various  times  and  places.  In  some  cases  the 
land-owners  required  more,  in  others  less,  than  the  customary 
amounts,  but  the  one  thing  they  always  were  in  want  of 
was  money.  From  the  point  of  view  of  the  villein,  the 

1  Stubbs'  Select  Charters,  p.  193.    Some  of  the  rates  of  commutation 
are  interesting ;  e.g.,  board  for  100  men,  one  shilling  ;  an  ox,  one  shilling  j 
a  sheep,  4d. 

2  Of.  Ch.  VI. 


DISTRIBUTION.  303 

change  to  money  payments  was  equally  desirable.  The 
abolition  of  forced  labour  gave  opportunities  for  earning 
wages  and  thus  for  saving;  and,  side  by  side  with  the 
process  of  commutation,  we  find  increasing  irregularity 
in  the  size  of  the  holdings.  The  process  was  facilitated, 
and  the  beneficial  effects  were  increased,  through  the 
practice  of  freeholders  acquiring  servile  lands.  The  rates 
of  commutation  were  moderate  and,  like  the  customs 
which  they  displaced,  fixed.  Thus  the  first  step  was 
taken  towards  the  creation  of  peasant  proprietors. 

The  occurrence  of  the  Black  Death  (A.D.  1349)  almost 
completed  the  act  of  emancipation.  It  intensified  both  in 
violence  and  rapidity  the  movement  already  in  progress. 
Too  late  the  land-owners  discovered  that  they  had  sold 
their  birthright  below  its  value.  In  vain  they  tried  to 
exact  the  old  forced  labour;  the  crops  were  rotting  on 
the  ground,  and  the  villein  would  be  welcomed  wherever 
he  chose  to  wander.  In  the  end  the  scarcity  of  labour 
and  its  high  price  rendered  landlord  cultivation  by  bailiff 
supervision  unprofitable ;  and,  to  a  great  extent,  the 
demesne  itself  became  merged  in  the  peasant  land.  The 
method  of  transition  was  by  the  land  and  stock  lease 
which  has  been  so  fully  and  admirably  described  by 
Rogers.1  The  landlords  let  both  land  and  stock  on  lease 
to  the  tenant.  In  principle,  the  system  was  a  species  of 
metairie,  but  it  differed  in  important  details.  It  was 
looked  on  as  a  temporary  expedient ;  the  rents  were  fixed 
for  short  periods  and  open  to  periodical  adjustment;  and 
the  stock  was  valued  to  the  tenant  and  restored  by  him 
on  the  termination  of  his  lease.  The  system  lasted  on 
the  average  about  seventy  years ;  at  the  end  of  that  time 
the  tenants  had  become  either  yeomen  practically  inde- 
pendent, or  farmers  with  their  own  capital.  Thus,  in 
England  economic  forces  effected  a  social  revolution  in 
the  fourteenth  century,  which  in  Germany  and  Russia  has 

1  Six  Centuries,  p.  229. 


304  PRINCIPLES  OF  POLITICAL  ECONOMY. 

^only  found  its  counterpart  in  the  nineteenth  century  by 
the  direct  intervention  of  the  state.1 

The  decay  of  the  feudal  power  in  the  towns  of  England, 
and  the  growth  of  freedom  and  self-government,  is  inti- 
mately connected  with  a  peculiar  system  of  payments. 
At  first,  the  yearly  profits  which  the  king  made  of  his 
towns  were  raised  and  paid  in  different  ways ;  sometimes 
they  were  levied  by  the  sheriff  of  the  county ;  sometimes 
the  towns  were  farmed  out  to  particular  persons ;  and,  in 
process  of  time,  the  farm  (or  ferme)  was  let  to  the  towns- 
men themselves  either  for  a  term  of  years  or  in  perpetuity.2 
It  may  be  observed  that  in  the  mediaeval  period  there  was 
a  constant  tendency  for  payments  which  were,  in  their 
origin,  proportional  or  variable  to  become  fixed.3  In  this 
way,  the  kings  and  other  superiors  lost,  in  general,  their 
share  in  the  growing  wealth  of  the  towns.  The  fee-farm 
of  the  town  or  city  signified  a  perpetual  rent,4  and  the 
townsmen,  after  a  time,  generally  obtained  the  farm  in  fee. 
The  fixation  of  the  payment,  as  Adam  Smith  observes, 
naturally  also  made  the  corresponding  privileges  perpetual, 

1  Compare  Systems  of  Land  Tenure  (Cobden  Club)  —  "  Germany  and 
Russia."     To  prevent   misunderstanding,  I   may  repeat  that  I   do  not 
intend  to  imply  that  this  social  revolution  was  entirely  due  to  the  eco- 
nomic forces  described  ;  it  is  enough  for  the  present  purpose  to  say  that, 
without  their  influence,  it  would  have  been  impossible.     The  part  played 
by  Wiclif's  poor  priests,  in  the  peasant  revolt  of  1381,  shows  that  ideas  of 
equality  derived  from  primitive  Christianity  were  fermenting  in  the  minds 
of  the  people  ;  and,  on  the  other  hand,  there  had  been,  on  the  legal  side, 
a  gradual  development  of  personal  freedom,  as  shown,  for  example,  by 
Magna  Charta. 

Some  years  ago  I  ventured  to  advocate  some  form  of  land  and  stock 
lease,  as  a  solution  of  the  crofter  difficulty  in  Scotland.  I  was  assured, 
however,  by  the  best  practical  authorities,  that  the  scheme  was  impracti- 
cable. It  is  noteworthy,  however,  that  metairie  is  spreading  in  France. 

2  Madox,  Firma  Bnrgi.     Adam  Smith,  Bk.  III.,  Ch.  III. 

8  The  tenth  and  fifteenth,  in  taxation,  form  a  good  example.  Cf. 
Dowell. 

4  "  Fee  is  derived  from /eodwro,  and  was  applied  by  usage,  in  England, 
to  a  perpetual  estate  or  inheritance  in  land  ;  it  was  also  applied  to  herita- 
ble offices,  called  offices  in  fee."  — MADOX. 


DISTRIBUTION.  305 

and  these  privileges  were  constantly  increased,  in  return 
for  additional  payments,  which  again  became  fixed.  It  is 
hardly  necessary  to  point  out  that,  although  the  kings 
sacrificed,  as  events  showed,  a  great  revenue  which  might 
afterwards  have  been  used  for  the  general  purposes  of  the 
state,  the  gain  to  the  country  as  a  whole  far  more  than 
counterbalanced  this  loss.  The  firma  burgi  was  essential 
to  the  progress  of  the  towns,  and  the  progress  of  the  towns 
was  essential  to  the  improvement  of  the  country.1 

§  7.  The  Decay  of  Feudalism  —  (e)  Changes  in  Land  Laws. 
The  substitution  of  money  payments  for  all  sorts  of  dues 
and  services  prepared  the  way  for  freedom  of  alienation 
of  land ;  and,  side  by  side,  freedom  of  bequest  struggles  to 
the  front.  The  family  instinct  of  the  nobility,  however, 
prompted  them  to  endeavour  to  establish  a  strict  system 
of  entails,2  but  the  attempt  was  defeated  by  a  variety  of 
legal  fictions,  which  gave  expression  to  the  common  sense 
of  the  community  and  especially  to  the  interests  of  the 
church.3  The  nobles,  on  the  other  hand,  whilst  striving 
to  hold  fast  their  land,  were  equally  anxious  to  escape 
from  the  obligations  incidental  to  feudal  tenures.  They 
endeavoured  to  make  ownership  merely  nominal  for  obli- 
gation ;  to  make  the  dues  as  small  as  possible,  and,  above 
all,  to  avoid  forfeiture.  This  led  to  the  system  of  uses  or 
trusts,  which  again  involved  secrecy  of  transfer.  The 
invention  is  ascribed  to  the  church,  but  the  instruction 
was  bettered  by  the  nobles,  and  gradually  became  the  rule. 
Accordingly,  although  the  victory  of  economic  ideas  was 
complete  in  principles,  it  was  far  from  complete  in 
methods;  it  was  only  achieved  by  the  use  of  cumbrous 
legal  devices,  the  evil  effects  of  which  still  remain.  It  is 

1  Adam  Smith,  Bk.  III.,  Ch.  IV. 

2  Cf.  Statute  de  Donis,  A.D.  1285. 

8  The  sixteenth  and  seventeenth  centuries  in  England  were  years  of 
almost  complete  freedom  of  alienation  ;  but  later  on  the  beneficial  mediae- 
val legal  devices  were,  to  a  great  extent,  defeated  by  other  inventions  for 
keeping  the  land  in  the  family.  Cf.  Scrutton,  Land  in  Fetters,  Ch.  VIII.; 
Brodrick,  English  Land  and  English  Landlords,  Ch.  III. 


306  PRINCIPLES  OF  POLITICAL  ECONOMY. 

impossible,  with  due  regard  to  the  scope  of  the  present 
work,  to  do  more  than  indicate,  in  this  very  brief  manner, 
some  of  the  salient  points  in  the  legal  development  and 
degeneration  of  feudalism.1 

1  The  works  of  Sir  F.  Pollock  and  Mr.  Scrutton,  cited  above,  give  an 
excellent  survey,  intelligible  to  the  lay  reader,  of  the  principal  stages  in 
the  progress  and  decay  of  feudalism.  They  are  written  from  the  legal 
standpoint,  but  with  a  due  appreciation  of  economic  influences.  See  also 
Garnier's  History  of  the  English  Landed  Interest.  Professor  Ashley's 
Economic  History,  Vol.  II.,  appeared  after  this  work  was  in  the  press. 
His  criticism  of  Rogers  deserves  careful  consideration. 


CHAPTER  VIII.  _ 

MODERN   OWNERSHIP   OF    LAND   AND   INDUSTRIAL 
FREEDOM. 

§  1.  Outline  of  the  Argument.  In  the  last  two  chap- 
ters I  have  examined  two  great  systems  of  land  tenure, 
which,  in  some  form  or  other,  seem  to  have  prevailed 
almost  universally.  In  this  chapter  and  the  next  I  pro- 
pose to  indicate  the  economic  effects  of  the  survivals  of 
these  systems,  the  principles  of  legislation  affecting  land 
that  arise  with  the  development  of  industrial  freedom, 
and  some  of  the  recent  modifications  of  those  principles. 
Briefly  stated*  my  object  is  to  examine  the  economic 
effects  of  certain  kinds  of  land  laws  which  are  of  impor- 
tance at  the  present  time.  I  shall  first  consider  laws  relat- 
ing to  the  ownership  of  land  in  the  modern  sense,  and 
secondly,1  those  relating  to  landlord  and  tenant. 

§  2.  On  Difficulties  in  the  Transfer  of  Land.  One  of  the 
principal  results  of  the  survivals  of  old  laws  and  customs 
is  that  land  cannot  be  bought  and  sold  so  readily  as  other 
forms  of  property.  Great  advances  have  recently  been 
made  both  in  England  and  Scotland,  but  the  fact  still 
remains,  that  the  transfer  of  land  falls  short  of  that  sim- 
plicity which  is  assumed  as  fundamental  under  the  system 
of  industrial  freedom.  It  would  be  impossible  to  indicate 
in  the  compass  of  this  work  the  nature  of  the  technical 
legal  difficulties ;  all  that  I  propose  to  do  is  to  exam- 
ine the  effects  of  such  difficulties  in  the  way  of  sale  or 
transfer, 

1  See  next  chapter. 
307 


308  PRINCIPLES  OF  POLITICAL  ECONOMY. 

1st.  In  the  first  place  there  is  a  waste  in  unnecessary 
legal  expenses,  e.g.,  in  ascertaining  the  nature  of  the  title. 
It  is  to  be  observed,  however,  that  from  the  nature  of  the 
case,  land  can  never  be  so  easily  transferred  as  some  other 
forms  of  property,  e.g.,  consols,  or  other  stocks  and  shares. 
44  Stock,"  it  has  been  well  said,  "  possesses  no  boundaries, 
conceals  no  minerals,  supports  no  game,  pays  no  tithes, 
admits  of  no  easements,  is  let  to  no  tenant,  and  is  ham- 
pered by  no  adjoining  owners."  l  The  expense  also,  at  any 
rate  in  Scotland,  where  a  system  of  registration  of  deeds 
prevails,  is  not  now  so  great  as  is  generally  supposed. 
According  to  the  calculations  of  Mr.  Auldjo  Jamieson,2 
who  has  had  a  very  wide  experience,  the  average  expenses 
in  the  case  of  large  estates  is  about  equal  to  that  of  trans- 
ferring railway  stock,  and  the  stamps  required  by  law 
amount  to  a  little  more  than  half  of  the  legal  expenses. 

The  expenses,  however,  are  not  proportioned  to  the  value 
of  the  estate,  being  proportionately  much  heavier  in  the 
case  of  small  properties.  Accordingly,  so  far  a  special 
check  is  imposed  on  the  transfer  of  land  in  small  quanti- 
ties. But  for  the  reasons  already  given,  it  is  doubtful  if 
the  abolition  of  all  expenses  connected  with  the  transfer 
of  land  would,  in  Great  Britain,  lead  to  a  system  of  peas- 
ant proprietors. 

2d.  "  Simplicity  and  facility,"  as  Mr.  Jamieson  observes, 
"are  as  valuable  as  cheapness,"3  and  the  law's  delay  is 
often  of  greater  consequence  than  the  law's  costs.  Again, 
any  uncertainty  or  difficulty  in  ascertaining  the  title 
renders  it  difficult  to  borrow  on  mortgage ;  and,  on  the 
other  hand,  encumbrances  of  various  kinds,  especially 
when  effected  with  more  or  less  secrecy,  also  tend  to 
make  transfer  difficult.  The  consequence  is  that  land 
does  not  find  its  way  into  the  hands  of  those  best  able  to 
make  use  of  it.  One  of  the  worst  abuses  connected  with 

1  Land  Laic  Reform  in  England,  p.  10,  by  Osborne  Morgan. 

2  Transactions  of  the  Chartered  Accountants  Students'1  Society  of  Ed- 
inburgh, Vol.  I.,  Ch.  I.  »  Ibid.,  p.  16. 


DISTRIBUTION.  309 

land  is  that,  in  many  cases,  the  nominal  is  not  the  real 
owner.  It  is  worth  observing,  that  the  economic  functions 
of  settlements  in  land  are  not  nearly  so  important  as  they 
once  were.  The  rent  of  land,  as  recent  experience  has 
shown,  is  by  no  means  the  most  certain  form  of  income. 
It  is  a  curious  popular  fallacy  to  suppose  that  land  is,  in 
some  way,  particularly  safe  because  it  is  always  there ;  it 
is  forgotten  that  land  which  yields  no  rent  is  of  as  little 
value  as  the  air  above  it,  which  also  technically  is  assumed 
to  be  part  of  the  property. 

3d.  The  idea  of  keeping  land  in  a  particular  family  is, 
under  modern  conditions,  essentially  anti-economic.  It  is 
true  that  the  popular  notion  that  land  can  be  now  strictly 
entailed  in  England  and  Scotland,  for  an  indefinite  period, 
is  fortunately  as  erroneous  as  the  idea  that,  by  the  law  of 
primogeniture,  land  necessarily  goes  to  the  eldest  son,  just 
as  in  France  it  is  compulsorily  divided.  Both  entail  and 
primogeniture,  as  at  present  practised,  gain  most  of  their 
force  not  from  law  but  from  custom,  but  the  custom  has 
deep  roots  in  history  and  sentiment.  It  is  worth  recalling 
the  evils  that  ensued  when  entails  were  comparatively 
strict ;  they  have  been  summarised  in  a  famous  passage  by 
Blackstone.  "  Children  grew  disobedient,  farmers  were 
ousted  from  their  leases,  for  if  such  leases  had  been  valid, 
then,  under  colour  of  long  leases,  the  issue  might  have 
been  virtually  disinherited ;  creditors  were  defrauded  of 
their  just  debts,  for  heirs  might  have  been  defrauded  by 
mortgaging;  innumerable  latent  entails  were  produced 
to  deprive  purchasers  of  their  land,  hence  law-suits  were 
encouraged,  and  also  treason,  as  estates-tail  were  not  liable 
to  forfeiture." 

§  3.  The  Advantages  of  Large  Estates.  It  would,  how- 
ever, be  a  serious  mistake  to  suppose  that  large  family 
estates  have  no  advantages.1  Before  assenting  to  the 

1"Some  very  interesting  calculations  on  the  distribution  of  landed  prop- 
erty were  made  by  Joseph  Kay  in  his  book,  Free  Trade  in  Land,  Letter 
I.,  under  date  Dec.  15,  1877  :  — 


310  PRINCIPLES  OF  POLITICAL  ECONOMY. 

popular  condemnation,  the  following  points  ought  to  be 
considered.  Ownership  on  a  large  scale  does  not  involve, 
necessarily,  cultivation  on  a  large  scale.  The  larger  the 
estate,  the  less  likely  is  the  owner  to  cultivate  it  himself, 
and  I  venture  to  say  that,  economically,  this  is  an  advan- 
tage ;  mere  ownership  does  not  imply  technical  agricultural 
skill  any  more  than  the  ownership  of  railway  shares  im- 
plies the  capacity  to  drive  an  engine.  In  Great  Britain 
there  are  more  than  half  a  million  tenant-farmers,  and  they 
are  the  most  skilful  in  the  world;  the  Scottish  farmers 
are  said  to  be  superior  to  the  English,  and  in  Scotland 
estates  are  larger.1  The  relations  of  landlord  and  tenant 
are  generally  better  on  large  estates.  The  owner  feels 
more  responsibility;  the  estate  is  governed  by  general 
rules,  and  there  is  not  so  much  room  for  caprice.  A  great 
land-owner,  imbued  with  family  traditions,  is  now  in  some 
respects  like  a  constitutional  monarch,  just  as  in  ancient 
times  he  was  like  a  despot.2  There  is  greater  security 

1.  England  and  Wales,  total  area,  37  millions  of  acres.     A  body  of 
men  not  exceeding  4500  own  more  than  half.     Less  than  280  people  own 
one-sixth  of  the  enclosed  land.    Sixty-six  people  own  one-eighteenth  part. 
One  man  owns  186,397  acres  (Kay,  p.  14). 

2.  In  Scotland  the  figures  are  still  more  striking.     Total  acreage  about 
19  millions.     One  owner  has  1,326,000  acres,  and  32,000  in  England  as 
well.    There  are  five  owners  with  more  than  300,000  each.    Twelve  own- 
ers have  a  quarter  of  Scotland.     Nine-tenths  of  the  whole  of  Scotland 
belongs  to  fewer  than  1700  people. 

3.  Ireland.    Total  area  is  20  million  acres.    Two  hundred  and  ninety- 
two  people  own  one-third  of  estate.     Seven  hundred  and  forty-four  people 
own  one-half  of  estate.    There  are  3  people  with  more  than  100,000  acres 
each. 

The  following  summary  is  still  more  startling :  — 

Two-thirds  of  the  whole  of  England  and  Wales  owned  by  10,207  persons. 
Two-thirds  of  the  whole  of  Scotland  owned  by  330  persons. 
Two-thirds  of  the  whole  of  Ireland  owned  by  1,942  persons. 

For  more  recent  figures,  see  Shaw  Lefevre's  Agrarian  Tenures,  p.  14. 

1  The  exceptional  skill  of  the  Aberdeen  farmers  is,  perhaps,  to  be  at- 
tributed to  the  severity  of  the  climate. 

2  Compare  Adam  Smith's  description  of  Cameron  of  Lochiel,  Bk.  III., 
Ch.  IV. 


DISTRIBUTION.  311 

of  tenure.  In  England,  many  farms  have  been  held  for 
generations  in  the  same  family  as  yearly  tenancies.  What 
is  called  a  fair  commercial  rent,  as  will  appear  presently, 
depends  on  a  complexity  of  causes,  and  is  difficult  to  esti- 
mate. Hence,  in  one  way,  it  is  good  that  contracts  for 
the  hire  of  land  should  not  be  too  rigidly  interpreted; 
there  should  be  something  of  the  uberrima  fides  of  partner- 
ship. Recently,  for  example,  in  Great  Britain  it  has  been 
found  necessary  to  reduce  rents,  owing  to  an  unprece- 
dented fall  in  prices.  The  great  land-owners  have  been 
much  more  ready  and  more  liberal  in  their  reductions.  As 
a  matter  of  fact,  the  rental  of  a  moderate  estate  is  a  pre- 
carious source  of  income;  and  it  is  generally  burdened 
with  debt  and  dignity.  The  Scottish  laird  is  neither  a 
lord  nor  a  yeoman,  and  the  sooner  his  estates  are  absorbed 
or  divided  the  better  for  the  country.  A  small  land-owner 
has  little  capital  for  permanent  improvements,  which  in 
Great  Britain  are  generally  made  by  the  landlord.  The 
case  of  very  small  tenants,  e.g.,  crofters,  is,  of -course,  pe- 
culiar, but  experience  has  shown  that  as  a  rule  they  are 
better  off  under  large  land-owners.  The  people  who  rack- 
rent  most  are  the  peasant  owners  abroad,  e.g.,  Flanders. 
The  principal  argument  for  small  estates  is  founded  on 
political  and  social  stability,  but  it  is  of  more  importance 
in  other  countries,  e.g.,  France  and  Germany,  than  in  Great 
Britain.  This  advantage  is,  moreover,  seldom  so  great  as 
might  be  supposed,  owing  to  the  pernicious  and  apparently 
inevitable  custom  of  mortgaging  small  properties.  In 
ancient  Greece  there  were  continual  outcries  against 
usury  and  appeals  for  seisachtheia,  —  a  shaking  off  of  bur- 
dens,— just  as  in  Russia  and  Germany  we  have  at  present 
intense  hatred  of  the  Jews,  which  is  based  far  more  on 
their  usury  than  on  their  race.  The  principal  argument 
usually  advanced  against  large  estates  is  also  political  and 
social;  the  owners  are  supposed  to  have  too  much  influ- 
ence for  a  democracy.  But  of  late  both  the  political  and 
the  social  power  of  large  ownership  have  been  largely 


312  PRINCIPLES  OF  POLITICAL   ECONOMY. 

abated.  It  should  be  remembered  also  that  in  return  for 
social  powers  there  are  certain  social  advantages.  In  Ire- 
land, the  greatest  outcry  was  against  the  new  commercial 
proprietors,  who,  after  the  act  of  1860,  bought  land  to 
make  as  large  profit  as  possible.  Again,  under  the  system 
of  large  estates  with  family  settlements  of  various  kinds, 
far  more  are  interested  than  the  merely  nominal  owners. 
The  landed  interest  in  Great  Britain  is,  perhaps,  a  more 
reliable  basis  of  social  stability  than  the  peasant  proprie- 
tary of  the  Continent. 

§  4.  Recent  Modifications  of  the  Economic  Principles  of 
Ownership  of  Land.  It  is  remarkable  that  in  the  United 
Kingdom,  before  the  commercial  system  has  been  fully 
applied  to  land,  that  is  to  say,  before  the  old  survivals 
have  been  got  rid  of,  new  modifications  on  different  prin- 
ciples have  been  adopted.  The  natural  course  of  develop- 
ment had  been  to  differentiate  ownership  from  tenancy, 
and  to  substitute  conventional  for  customary  tenures  of 
various  kinds.  These  feudal  obligations  and  common 
rights  had  been  largely  abolished,  and  the  owners  of  land 
had  acquired  proportionately  greater  freedom.  A  good  ex- 
ample is  furnished  by  the  agrarian  legislature  of  Prussia 
during  the  present  century.  "  It  is  marked  by  the  demoli- 
tion of  the  feudal  edifice  and  the  removal  of  the  materials 
of  which  it  was  built."  *  Before  the  reforms,  the  peasants 
held  the  peasant-land  by  as  good  a  title  as  the  lord  held 
the  noble-land ;  the  peasant  paid  no  rent,  in  the  ordinary 
sense,  but  he  was  forced  to  perform  certain  services.  The 
essence  of  the  reforms  consisted  in  enabling  the  peasants 
to  compound  for  their  services  by  surrendering  part  of  the 
peasant-land  and  holding  the  remainder  free  from  feudal 
obligations.  The  popular  idea  that  peasant  proprietors 
were  established  by  taking  part  of  the  land  of  the  nobles, 
is  exactly  the  reverse  of  the  truth.2 

"  In  every  progressive  society,"  it  has  been  said,  "  the 

1  Systems  of  Land  Tenure —  "  Prussia,"  by  R.  B.  D.  Morier. 

2  Morier,  op.  cit.,  p.  3G2,  note.     Richey's  Irish  Land  Laics,  p.  5,  note. 


DISTRIBUTION.  313 

laws  relative  to  the  rights  and  duties  of  the  owner 
and  hirer  of  land  tend  to  follow  an  invariable  order  of 
change ;  the  parties  are  permitted  to  make  their  own  bar- 
gains ;  land  may  be  dealt  with  as  any  other  commodity."  l 
When  this  order  of  change  has  been  perfected,  we  may 
assume  that  the  owner  of  land  can  do  with  the  land  as  he 
pleases,  and  let  it,  if  he  likes,  on  any  terms  that  conform 
to  the  ordinary  rules  of  lawful  contract.  Recently,  how- 
ever, in  the  United  Kingdom,  of  all  places,  before  the  old 
fetters  have  been  altogether  removed,  new  fetters  have 
been  imposed.  In  other  words,  a  reversion  has  been  made 
towards  the  ancient  confusion  of  ownership  and  tenure, 
and  part  of  the  rights  of  the  owner  have  been  transferred 
to  the  tenant.  Some  account  of  the  principles  involved 
will  be  given  in  the  next  chapter. 

1  Richey,  op.  cit.,  p.  8. 


CHAPTER  IX. 

CONTRACTS   FOR   THE   HIRE  OF   LAND. 

§  1.  Free  Trade  in  the  Hire  of  Land.  In  his  excellent 
work  on  the  Irish  Land  Laivs,1  Dr.  Richey,  with  the  object 
apparently  of  illustrating  his  subject  by  the  light  of  con- 
trast, gives,  by  way  of  introduction,  an  account  of  the 
French  law  as  laid  down  in  the  Code  Napoleon.2  The 
principles  of  this  law  were  in  the  main  those  developed  by 
the  great  Roman  jurists,  who  were  altogether  free  from 
feudal  influences.  Briefly  described,  the  French  law  is 
"the  most  complete  and  equitable  application  of  the  rules 
of  free  trade  to  the  case  of  the  letting  and  hiring  of  land." 
According  to  this  system,  the  same  rules  are  applied  to 
land  as  to  any  other  commodity ;  the  relative  rights  and 
obligations  of  landlord  and  tenant  depend  entirely  on  con- 
tract ;  any  kind  of  agreement  may  be  made,  not  showing 
signs  of  force  or  fraud  or  other  flaw  that  would  vitiate  any 
contract;  and  it  is  only  in  so  far  as  the  agreement  is  silent 
that  the  law  steps  in  to  secure  an  equitable  division  in  case 
of  dispute.  The  same  principles  are  applied  with  the 
utmost  impartiality  to  landlord  and  tenant.  It  is  cer- 
tainly remarkable  that  in  the  country  to  which  we  are 
most  often  referred  for  examples  of  small  cultivation,  the 
principles  of  the  law  should  be  so  strictly  unbiassed.  The 
subject  may  be  considered  with  reference  to  three  topics : 
rent,  compensation  for  improvements,  duration  of  tenancy. 

§  2.  Rent  under  the  Free  Trade  System-  The  same 
principle  is  applied  as  in  the  case  of  the  sale  of  anything. 

1  Irish  Land  Laws,  Chs.  III.-V.  2  ch.  V.,  p.  33. 

314 


DISTRIBUTION.  315 

The  use  of  the  land  is  considered  as  sold  for  a  term  of 
years,  with  payment  by  instalments.  Now,  in  ordinary 
sales,  the  court  would  only  interfere  if  the  price  seemed 
so  ridiculously  high  (or  low)  as  to  imply  misrepresenta- 
tion on  one  side  or  the  other.  It  is  assumed,  then,  that 
the  landlord  must  have  covenanted  that  the  annual  prod- 
uce should  at  any  rate  exceed  the  rent.  Accordingly,  if 
the  crop  fails  he  must  share  in  the  loss.  In  practice  some 
rule  is  necessary,  and  liability  to  share  in  the  loss  only 
arises  if  the  crop  is  less  than  half  an  average,  and  in  cases 
of  a  term  of  years  the  tenant  must  show  that,  taking  good 
years  with  bad,  he  has  lost  more  than  half  the  crop.  Thus 
the  law  does  not  attempt  to  determine  "  fair "  rents ;  it 
leaves  abundant  scope  for  enterprise  and  speculative  bar- 
gains ;  it  only  steps  in  when  the  implied  condition, 
namely,  that  the  landlord  lets  a  valuable  subject  (posses- 
sion utile)  is  not  fulfilled,  the  practical  test  being  this  rule 
of  half  the  crop.1 

§  3.  Fair  or  Judicial  Rents.  In  Ireland  generally,  and 
in  Scotland  partially,  the  law  in  recent  years  has  been  ex- 
tended much  farther,  and  in  many  quarters  a  still  greater 
extension  is  demanded.  Government  has  undertaken  to 
fix  fair  rents  for  a  term  of  years,  not  by  the  application  of 
any  broad  principles,  but  by  precise  valuation  in  every 
particular  case.  It  is  interesting  to  notice  the  grounds 
upon  which  this  remarkable  inroad  has  been  made  into  the 
"  fair  field  "  of  contract.  I  pass  over,  of  course,  the  politi- 
cal exigencies  that  cannot  be  regarded  as  economic.  For 
the  present  purposes  it  is  enough  to  consider  whether 
judicial  rents  are  in  any  cases  economically  justifiable. 

It  is  alleged  that  in  contracts  for  the  hire  of  land,  land- 
lord and  tenant  are  not  on  an  equal  footing,  that  there 
may  be  land-hunger  on  the  one  side  and  monopoly  on  the, 
other.  It  may  be  at  once  granted  that  the  old  cottieri 
rack-rents  of  Ireland  —  greater  than  ever  could  be  paid  — 
were  unjustifiable  even  on  the  free  trade  principles  of  the 
1  Cf.  Tenant's  Gain,  p.  97. 


316  PRINCIPLES  OF  POLITICAL  ECONOMY. 

French  law.  And  we  may  go  farther  and  admit  that,  with 
land-hunger  and  agrarian  pauperism  of  this  kind,  freedom 
of  contract  was  a  vain  name  ;  the  tenants  had  neither  the 
means  nor  the  audacity  to  appeal  to  the  courts,  even  if 
there  had  been  laws  in  their  favour ;  and,  accordingly, 
the  direct  intervention  of  government  was  desirable. 
But  it  must  be  carefully  noted  that,  so  far,  the  real 
grounds  of  the  intervention  were,  first,  the  right  of  the 
state  to  control  monopolies,  and  secondly,  the  duty  of  the 
state  to  alleviate  pauperism,  and  these  two  grounds  are  in 
their  nature  essentially  distinct.  It  may  be  questioned 
if  the  fundamental  evil  in  land-hunger  is  ever  rack-rent- 
ing. Nothing  can  be  more  certain  than  that  where  minute 
subdivision  of  the  soil  exists,  the  fair  rent  (judged  by  the 
capacity  of  the  tenant  to  pay)  is  something  below  zero ; 
and  it  may  be  doubted,  when  the  holdings  are  sufficiently 
large,  if  rack-renting  in  itself  has  ever  been  such  as  to 
justify  governmental  interference.  In  the  case  of  real 
agrarian  pauperism,  judicial  rent  is  simply  a  mode  of  out- 
door relief ; l  and  the  relief  is  generally  too  small  to  allevi- 
ate distress,  and  in  reality  tends  to  perpetuate  the  evil  by 
taking  away  another  inducement  to  emigration. 

It  is  worth  observing  that  the  arguments  I  have  been 
examining  may  be  applied  to  the  lowest  forms  of  labour 
generally.  It  may  be  said  that  capital  and  labour  are  not 
on  an  equal  footing,  e.g.,  as  in  the  case  of  a  master-sweater 
and  his  victims,  and  that  the  house-rents  of  the  poor  are 
governed  by  monopoly.  But  the  attempts  under  the  old 
poor  laws  to  determine  fair  wages,  and  to  provide  house- 
room  at  fair  rents,  are  the  reverse  of  encouraging.2 

It  is  plain,  however,  that  if  the  cultivators  are  not 
paupers  and  the  land-owners  are  not  monopolists,  judicial 
rents,  if  advocated,  must  be  supported  on  other  grounds. 
The  ordinary  British  farmer  fortunately  neither  suffers 
from  land-hunger  nor  from  landlord  tyranny.  At  present, 

1  It  is  like  the  allowance  for  house-rent,  described  in  the  Poor  Law  Re- 
port (1834).  «  Cf.  infra,  Ch.  XL,  §  7. 


DISTRIBUTION.  317 

indeed,  the  hunger  is  not  for  the  land  but  for  the  tenant, 
and  the  land-owner  in  many  cases  haa  to  bribe  his  tenants 
to  stay.  In  these  circumstances  it  is  not  easy  to  give  the 
appearance  of  plausibility  to  the  demand  for  judicial  rents. 

It  is  true  that  it  is  extremely  difficult l  to  forecast  for  a 
term  of  years  the  rent  which  a  piece  of  land  can  really 
afford  to  pay ;  to  pass  over  particulars,  there  is  the  uncer- 
tainty of  seasons  and  the  uncertainty  of  prices.  But  to 
suppose  that  governments  can  foresee  what  is  hidden  from 
those  most  interested  is  worse  than  rural  simplicity.  The 
best  answer,  however,  to  the  proposal  for  governmental 
interference,  on  the  ground  of  superior  knowledge,  is 
that  the  information,  if  it  exists,  should  be  published ;  at 
present,  in  reality,  forecasts  of  judicial  rents  would  prob- 
ably not  be  so  reliable  as  those  of  meteorology. 

The  fatal  objection  to  judicial  rents  ex  post  facto,  that  is 
to  say,  on  behalf  of  tenants  in  present  occupation  is,  that 
the  competition  of  more  efficient  tenants  is  excluded.  The 
practical  result  is  to  hand  over  to  the  present  tenants  part 
of  the  rights  of  ownership.  It  must  also  be  observed  that, 
if  the  state  is  to  come  in  to  adjust  reductions  on  the 
ground  of  unexpected  losses,  equitably,  it  should  also  come 
to  the  aid  of  the  land-owners  in  the  contrary  case  of  unex- 
pected profits. 

There  is  one  other  reason  sometimes  advanced  in  sup- 
port of  governmental  interference  in  exceptional  cases : 
when  a  large  number  of  tenants  are  in  danger  of  insolvency, 
if  their  rents  are  exacted,  it  is  maintained  that  agriculture 
is  an  industry  of  such  magnitude,  and  the  capital  and  skill 
required  in  it  take  so  long  a  time  to  build  up,  that  any- 
thing approaching  the  ruin  of  the  present  tenants  would 
be  a  national  disaster.  In  the  first  place,  however,  it  must 
be  borne  in  mind  that  agriculture  has  steadily  progressed 
in  spite  of  a  series  of  prophecies  of  impending  ruin  during 
several  centuries,  especially  the  present;  and  secondly, 
that  it  would  be  for  the  interest  of  the  landlords,  in  the 
i  See  infra.  Bk.  II.,  Oh.  XIV.,  Appendix. 


318  PRINCIPLES  OF  POLITICAL  ECONOMY. 

prospect  of  such  a  calamity,  to  make  reductions  volun- 
tarily ;  the  recent  reductions  in  Great  Britain  certainly 
evinced  a  kindly  feeling,  but  they  also  evinced  a  sound 
understanding.  It  may  be  added,  that  if  British  agri- 
culture were  in  real  danger  of  ruin,  the  total  abolition  of 
rents  would  do  little  to  prevent  it;  and  the  argument 
under  review,  if  pushed  to  its  logical  extreme,  must  lead 
to  protection  —  a  far  simpler  remedy. 

§  4.  Compensation  for  Improvements  under  the  Free 
Trade  System.  The  general  principle  of  the  French  law 
as  regards  improvements,  is  that  a  tenant,  on  leaving  the 
farm,  should  give  it  up  in  exactly  the  same  state  in  which 
he  received  it,  apart,  of  course,  from  any  voluntary  agree- 
ment to  the  contrary.  Accordingly,  he  has  the  right  to 
remove  anything  that  he  can — e.g.,  buildings  —  consistently 
with  this  condition,  and  conversely,  the  land-owner  can 
compel  him,  so  far  as  possible,  to  remove  anything  that  he 
pleases.  If,  however,  the  landlord  elects  to  retain  the  im- 
provements, he  can  do  so  by  giving  the  original  cost,  with- 
out any  regard  to  a  subsequent  rise  in  value.  The  obvious 
effect  of  this  rule  is  to  prevent  the  tenant  making  any 
serious  changes  without  the  consent  of  the  landlord.  The 
idea  is,  that  the  land  is  let  for  a  limited  term  for  a  definite 
purpose,  and  that  if  the  tenant  knowingly  goes  beyond 
this,  he  has  no  claim.  At  the  same  time,  the  land-owner 
cannot  (as  in  the  case  of  fixtures  in  England),  so  to  speak, 
fine  the  tenant  by  forfeiture  ;  the  case  is  treated  as  one  of 
separating  two  kinds  of  property  that  have  become  mingled; 
the  tenant  obtains  the  original  cost,  but  any  rise  in  value 
is  credited  to  the  land.  The  same  principle  is  applied  in 
the  case  of  deterioration  or  dilapidation  by  the  tenant.  He 
is  bound  to  treat  the  land  according  to  the  rules  of  good 
husbandry,  and  to  leave  buildings,  fences,  etc.,  in  as  good 
condition  as  they  were  on  entry. 

In  Ireland,  and  in  Great  Britain  to  a  less  degree,  legis- 
lation has  gone  much  further  in  the  interest  of  the  tenant, 
and  its  principles  deserve  careful  attention. 


DISTRIBUTION.  319 

§  5.  Tenant  Right  and  Free  Sale.  It  is  a  difficult  task 
to  compress  into  a  single  section  the  principles  of  the  re- 
cent revolution  in  Irish  land  tenures,  but  for  the  purpose 
in  hand  it  is  best  to  avoid  details.  In  Ulster  the  custom 
had  prevailed  for  a  long  time  of  the  tenant  making  all  the 
improvements,  and  upon  this  custom  there  had  grown  up 
the  right  of  selling  them  to  the  incoming  tenant.  In  other 
parts  of  Ireland  it  was  maintained  that  the  custom  had 
prevailed  without  the  corresponding  right,  and  that  the 
land-owner,  by  raising  the  rent,  practically  robbed  the 
tenant  of  his  improvements.  The  hardship  was  aggra- 
vated by  the  practice  of  absenteeism.1  The  first  step  taken 
in  the  way  of  reform  (1860)  was  to  abolish  every  remnant 
of  the  old  feudal  law,  and  to  reduce  the  relation  of  land- 
lord and  tenant  to  one  of  contract,  as  in  the  French  sys- 
tem. It  was  held,  however,  that  as  between  the  landlord 
and  a  majority  of  the  tenants  there  was  not  and  could  not 
be  any  real  freedom  of  contract,  because  the  tenants  had 
no  other  means  of  livelihood  in  case  of  eviction,  and  must 
^submit  to  any  terms.  Many  encumbered  estates  were  sold 
(under  special  provisions  in  a  very  simple  way)  to  capital- 
ists, who  bought  them  purely  as  investments  to  yield  money. 
The  consequence,  it  was  said,  was  an  increase  in  rack- 
renting,  and  still  greater  confiscation  of  improvements. 
The  threat  of  eviction  was  the  sword  in  the  balance. 

Accordingly,  an  attempt  was  next  made  (1870)  to  give 
security  of  tenure.  The  principle  was  introduced  of  com- 
pensation for  disturbance.  The  landlord  might  still  evict, 
but  the  process  was  made  expensive.  The  principle  was 
novel,  and  the  application  2  showed  that  it  was  introduced 
for  indirect  and  ulterior  consequences.  At  any  rate, 
whether  intended  or  not,  the  consequences  soon  appeared. 
Obviously,  the  land-owner  could  not  equitably  be  com- 

1  The  reader  interested  in  the  Irish  land  question  should  begin  with 
Arthur  Young's  Tour  in  Ireland  (1776). 

2  Cf.  Richey,  Ch.  IX.,  for  the  scale  adopted,  which  was  extremely 
peculiar  and  illogical. 


320  PRINCIPLES  OF  POLITICAL  ECONOMY. 

pelled  to  give  compensation  for  disturbance,  if  the  ground 
of  eviction  was  non-payment  of  rent ;  otherwise,  a  tenant 
could  practically  live  rent-free  until  his  arrears  were  equal 
to  the  expense  of  getting  rid  of  him,1  and  if  he  were  evicted 
before,  he  would  actually  make  a  profit  in  addition.  But 
if  non-payment  of  rent  destroyed  the  right  of  compensation, 
where  was  the  security  of  tenure  ?  What  was  to  prevent 
the  land-owner  from  raising  his  rents  to  the  full  competi- 
tive value? 

To  make  the  compensation  for  disturbance  a  reality,  it 
was  found  necessary  to  initiate  judicial  rents ;  a  beginning 
was  made  in  the  act  of  1870,  and  in  1881  the  method  was 
fully  developed.  At  the  same  time  it  was  discovered 
or  propounded  that  the  law  of  1870  had  implicitly  recog- 
nised the  tenant's  right  to  his  improvements,  and  that  no 
doubt  might  remain,  he  was  now  allowed  to  sell  his  right 
to  the  highest  bidder.  It  is  easy  to  see  that  logically  free 
sale  involves  fair  rents.  For,  as  regards  the  tenant,  the 
value  of  his  right  depends  partly  on  the  rent  that  must  be 
paid,  and  if  the  landlord  could  raise  the  rent  as  he  pleased, 
he  could  destroy  the  tenant's  interest.  On  the  other  side, 
if  the  outgoing  tenant  was  allowed  to  sell  at  the  highest 
price,  he  might  obtain  what  was  equitably  due  to  the  land- 
lord, owing  to  a  natural  rise  in  rent.  It  is,  however, 
equally  obvious  that(  free  sale,)  as  has  been  well  said,  kills 
(  fair  rent.  }.If  there  is  land-hunger,  the  value  of  the  tenant 
right  will  be  pushed  by  competition  to  such  an  extreme, 
that  the  interest  on  the  sum,  added  to  the  judicial  rent, 
will  amount  to  a  rack-rent.  This  discovery  was  fortu- 
nately made  in  time  to  prevent  the  grant  of  the  doubtful 
boon  of  free  sale  to  the  crofters  in  Scotland.  They  ob- 
tained judicial  rents  and  fixity  of  tenure,  but,  in  their  case, 
to  make  the  fixity  of  tenure  a  reality,  it  now  appears  to  be 
intended  to  give  more  land,  or,  as  it  will  probably  be  called 
for  the  sake  of  alliteration,  a  fair  share  of  the  land. 

§  6.  Duration  of  Tenancy.  It  has  already  been  implied 
1  In  the  case  of  small  farms  the  compensation  was  seven  years'  rental. 


DISTRIBUTION.  321 

that  fixity  of  tenure  is  associated  with  fair  rent  and  free 
sale,  but  the  point  deserves  distinct  statement.  The 
length  of  the  lease,  under  the  French  law,  is  of  course  left 
to  contract,  and  in  case  of  dispute,  reference  is  made  to 
the  circumstances  of  the  case.  The  general  principle 
applied  is  that  it  takes  a  certain  time  to  remove  capital 
and  get  in  crops.  Any  further  fixity  of  tenure  obviously 
excludes  competition,  and  is  unjust  to  the  land-owner  and 
to  others  who  wish  to  take  land.  Fixity  of  tenure  neces- 
sarily involves  fair  rent;  otherwise,  the  land-owner  has 
simply  to  raise  the  rent  to  secure  eviction. 

§  7.  Recent  Changes  in  the  English  and  Scottish  Laws 
affecting  the  Hire  of  Land.  In  Great  Britain,  with  the  ex- 
ception of  the  case  of  Scottish  crofters,  the  inroads  made 
in  freedom  of  contract  in  the  hire  of  land  have  not  been  so 
great.  A  beginning,  however,  has  been  made,  and  already 
the  law  requires  amendment.  According  to  the  Act  of 
1883,  improvements  are  classified  in  three  groups.  In  the 
first,  which  are  supposed  to  be  permanent,  e.g.,  buildings,  no 
compensation  is  given  except  by  agreement ;  in  the  second, 
e.g.,  drains,  the  landlord  is  to  have  the  option  of  making 
them  himself  and  charging  the  tenant  so  much  interest, 
but,  in  case  of  refusal,  the  tenant  may  do  them  and  make 
a  claim  for  compensation ;  in  the  third,  e.g.,  manures,  com- 
pensation is  compulsory.  The  general  principle  appears  to 
be  that  land  is  supposed  to  be  let  bona  fide  for  agricultural 
purposes,  and  that,  in  order  to  treat  the  land  according  to 
the  modern  rules  of  good  husbandry,  it  is  absolutely  neces- 
sary to  fix  in  or  on  the  soil  certain  forms  of  capital.  The 
more  permanent  forms  are  naturally  (and  by  custom)  pro- 
vided by  the  land-owner,  but  those  of  a  less  durable  char- 
acter are  furnished  by  the  tenant,  and  it  is  considered  only 
just  that  the  tenant  should  secure  compensation  for  such 
as  are  unexhausted  on  the  termination  of  the  lease.  The 
justice  of  the  case  is  supported  on  the  purely  economic 
ground,  that  if  compensation  is  not  given,  the  tenant, 
towards  the  end  of  his  lease,  will  try  to  extract  the  value 


322  PRINCIPLES  OF  POLITICAL   ECONOMY. 

from  the  land  to  the  detriment  of  the  land-owner.  Under 
the  old  system  of  a  nineteen  years'  lease,  it  was  said  that 
six  years  were  required  to  get  the  land  into  condition  by 
putting  capital  into  it,  during  seven  years  the  tenant 
treated  the  land  as  if  he  loved  it,  and  the  last  six  years 
were  occupied  in  taking  the  capital  out  that  was  put  in  in 
the  first  six.  In  a  former  work 1 1  advocated  the  extension 
of  the  principle  of  compulsory  compensation,  to  any  im- 
provements that  did  not  change  the  character  of  the  hold- 
ing. The  working,  however,  of  the  recent  act  has  been 
so  unsatisfactory  that  I  am  inclined  to  doubt  whether  any 
kind  of  compulsion  is  desirable.  As  so  often  happens,  it 
is  in  the  practical  application  that  the  law  breaks  down. 
It  is  extremely  difficult  to  estimate  unexhausted  improve- 
ments, and  great  discrepancies  have  occurred  in  the  valua- 
tion of  different  arbiters.  It  must  be  remembered  also,  as 
is  forcibly  argued  by  the  Duke  of  Argyll,2  that  compensa- 
tion for  improvements  will  not  benefit  the  tenant  so  much 
as  is  generally  supposed,  because  the  privilege  itself  will 
have  a  pecuniary  value ;  that  is  to  say,  a  landlord  will  de- 
mand, and  the  tenant  can  afford  to  give,  a  higher  rent  in 
proportion.  Under  the  old  improving  leases,  as  they  were 
called,  the  rent  was  low  because  ultimately  the  permanent 
improvements  were  to  go  to  the  landlord. 

§  8.  Conclusion.  It  may,  perhaps,  be  plausibly  main- 
tained that  the  provisions  of  the  Agricultural  Holdings' 
Acts  which  apply  to  England  and  Scotland  were  intended 
to  give  effect  to  the  real  intentions  of  the  contracting 
parties.  There  can  be  no  doubt,  however,  that  the  three 
F's,  fair  rents,  fixity  of  tenure,  free  sale  of  tenant  right, 
and  the  fourth  F,  a  fair  share  in  the  land,  are  directly 
opposed  to  freedom  of  contract,  and  the  statesman  who 
introduced  them  did  well  to  send  political  economy  to 
Saturn.  Whether  the  principles  can  be  justified  on  other 
grounds,  such  as  social  stability,  differences  of  race,  and 

1  Tenants'  Oain,  Ch.  X. 

2  Commercial  Principles  applied  to  Contracts  for  the  Hire  of  Land. 


DISTRIBUTION.  323 

the  like,  it  is  beyond  my  province  to  inquire.  It  is, 
however,  worth  pointing  out  that  the  logical  outcome  of 
the  Irish  land  legislation  is  to  enable  the  tenants  by  state 
credit  to  purchase  their  holdings,  and  it  seems  unfor- 
tunate that  the  simple  plan  of  expropriation  was  not  at 
once  adopted.  It  is  also  remarkable  that,  in  spite  of  the 
series  of  boons  conferred  upon  the  tenants,  the  original 
giver  should  have  thought  it  necessary,  in  the  interests 
of  security,  to  grant  political  independence  or  autonomy. 
At  the  same  time,  to  prevent  misapprehension,  I  should 
like  to  record  the  impression  made  upon  my  mind  by  a 
visit  to  Ireland  some  ten  years  ago.  The  country  had 
all  the  appearance  of  being  under  military  occupation,  and 
government  by  force  is  repugnant  to  English  feeling  and 
tradition.  The  people,  even  in  the  most  disturbed  dis- 
tricts, showed  not  the  slightest  national  animosity ;  on  the 
contrary,  they  were  excellent  comrades,  but  any  reference 
to  land  was  certain  to  evoke  some  passionate  outburst. 
As  with  the  government,  so  with  the  land,  something  was 
wrong  ;  and  to  give  peace  and  prosperity  to  Ireland  might 
well  seem  to  be  the  highest  ambition  and  the  most  pressing 
duty  of  a  British  statesman.  If  my  criticism  of  the  Irish 
land  legislation  seems  too  severe,  it  is  at  any  rate  not  due 
to  any  want  of  sympathy.  I  may  conclude  this  digression 
with  observing  that  Adam  Smith  most  strongly  advocated 
the  union  of  Ireland  with  Great  Britain,1  and  he  enforced 
his  opinion  by  reference  to  the  advantages  which  Scotland 
had  derived  from  the  union  with  England.2 

1  Wealth  of  Nations,  Bk.  V.,  Ch.  III. 

2  Since  this  chapter  was  written,  Mr.  Shaw  Lefevre  has  published  his 
work  on  Agrarian  Tenures.     He  gives  a  very  clear  and  succinct  account 
of  recent  land  legislation. 


CHAPTER  X. 

WAGES   AND  THEORIES   OF   WAGES. 

§  1.  Preliminary  Account  of  Custom  and  Competition  as 
Affecting  Wages.  Just  as  customary  tenures  of  land  pre- 
ceded conventional  tenures,  so  also  we  may  say  that  cus- 
tomary wages  preceded  competition  wages.  In  the  early 
land  tenures  there  were,  it  is  true,  always  present  certain 
germs  of  freedom  of  contract,  which  eventually  destroyed 
the  old  organisation  ;  and  similarly,  in  the  determination  of 
wages  competition  was  never  altogether  absent,  and  in  the 
course  of  economic  progress  it  has  become  the  preponderat- 
ing influence.  Even  at  present,  however,  in  the  most 
advanced  industrial  societies,  wages  depend  partly  upon 
causes  which  are  more  properly  classed  under  custom  than 
under  competition.  Most  economists,  in  treating  of  wages, 
take  wages  as  meaning  the  price  paid  for  the  use  of  labour, 
and  apply  the  principles  of  demand  and  supply  and  cost  of 
production  as  in  the  case  of  other  commodities  that  bear  a 
price.  "The  demand  for  men,"  says  Adam  Smith,1  "like 
that  for  any  other  commodity,  necessarily  regulates  the 
production  of  men  " ;  and  Ricardo,2  "  Labour,  like  all  other 
things  that  are  purchased  and  sold,  and  which  may  be  in- 
creased or  diminished  in  quantity,  has  its  natural  and  its 
market  price."  Both  writers  allow  for  the  effects  of  the 
habits  and  customs  of  the  people,  each  according  to  his 
usual  style  of  procedure  ;  Ricardo,  in  a  sentence  and  a  foot- 
note that  are  generally  overlooked,  and  Adam  Smith,  in  a 
chapter  3  on  economic  history  that  has  been  reproduced  in 

1  Bk.  I.,  Ch.  VIII.        2  Principles,  Ch.  V.        3  Bk.  I.,  Ch.  X.,  Pt.  II. 

324 


ng   on 
1,  only/ 
Lifying) 


DISTRIBUTION.  325 

whole  or  in  part  in  all  the  text-books.  Later  writers  have 
also  pointed  out  important  differences  between  man  and 
other  commodities,  but  in  general  they  have  considered 
these  differences  only  in  so  far  as  they  modify  the  action 
of  demand  and  supply ;  the  idea  of  exchange  value  or 
price  is  still  fundamental. 

In  the  design  of  the  present  work,  however,  this  mode 
of  procedure  is  unsuitable,  and  instead  of  looking  on 
custom  as  modifying  competition  I  shall,  first  of  all, 
consider  competition  as  part  of  the  forces  modifyii 
custom.  In  tracing  historically  the  growth  of  the  power 
of  competition  the  advantage  of  this  method  is  obvious ; 
it  takes  its  place  as  one  branch  of  the  inquiry  into  the 
progress  of  society  from  status  to  contract.  In  such 
extreme  cases  as  slavery  and  serfdom  competition  is 
plainly  an  inappropriate  conception  even  as  a  guiding 
hypothesis,  and  in  a  modern  industrial  system  there  are 
many  important  influences  affecting  wages  which  are  the 
results  of  the  cumulative  effects1  of  past  conditions. 

In  the  first  place,  however,  it  will  be  necessary  to  give 
a  careful  analysis  of  wages,  and  to  point  out  the  variable 
elements  on  which  wages  depend.  Some  of  these  elements, 
we  shall  find,  easily  fall  under  the  sway  of  custom,  whilst 
others  are  more  liable  to  be  determined  by  competition. 

It  will  also  be  necessary,  secondly,  to  indicate  broadly 
the  laws  by  which  wages  are  governed  under  a  system  of 
industrial  competition  and  freedom,  before  proceeding  to 
the  historical  development.  The  mode  of  procedure  is 
that  already  adopted  in  reference  to  property  in  general 
and  land  in  particular. 

§  2.  Wages  as  the  Real  Reward  for  a  Quantity  of  Labour. 
Waives,  like  labour,  may  be  regarded  from  two  points  of 
view,  which,  to  adopt  the  phraseology  formerly2  employed, 
may  be  called  subjective  and  objective,  respectively.  The 
words,  it  is  true,  are  reminiscent  rather  of  modern  phi- 
losophy than  of  ancient  custom,  but  they  are  useful  ab- 

i  Cf.  Marshall's  Principle*,  Bk.  VI.,  Ch.  IX.  2  Bk.  I..  Ch.  V. 


326  PRINCIPLES  OF  POLITICAL  ECONOMY. 

breviations  for  the  purpose  in  hand ;  and  the  distinction 
implied  is  always  of  fundamental  importance. 

We  may  first  consider  wages  as  the  reward  for  laying 

down  so  much  ease  and  happiness  (as  Adam  Smith  phrases 

At),  or,  in  modern  parlance,  as  the  utility  that  accrues  to 

/the  labourer  in  return  for  the  disutility  of  his  toil ;  that 

j  is  to  say,  we  may  look  on  work  as  involving  a  certain 

j  quantity  of  labour  in  the  subjective  sense,1  and  wages  as 

furnishing  so  much  happiness  and  satisfaction  in  the  shape 

of  the  conveniences  and  necessaries  of  life.     If  we  reckon 

the  reward  simply  in  terms  of  money,  the  wages  are  called 

nominal;  if  we  go  behind  the  money  and  consider  what 

it  will  purchase,  and  if,  further,  we  take  into  account  all 

the  other  desirable  things  the  worker  obtains  in  virtue 

of  his  toil,  we  arrive  at  the  conception  of  real  wages. 

It  is  clear,  however,  that  in  either  sense  —  nominal  or 
real  —  wages  is  always  a  correlative  term;  it  implies  a 
certain  quantity  of  labour.  In  nominal  wages,  time  is 
generally  the  only  element  considered  on  the  other  side, 
and  we  describe  wages  as  so  much  money  per  hour,  day, 
week,  or  year.  If  other  things  remained  the  same,  this 
would  be  sufficient  for  purposes  of  comparison;  but  in 
general,  to  estimate  real  wages  we  must  go  much  further 
both  in  respect  to  wages  and  quantity  of  labour. 

As  regards  quantity  of  labour,  even  time  itself  cannot  be 
taken  as  uniform  in  its  effects ;  the  toil  of  the  first  hour 
is  very  different  from  the  toil  of  the  thirteenth.  There 
are  besides  the  other  elements  already2  described  in  detail; 
the  intensity  of  the  labour,  the  preliminary  preparation, 
the  various  general  and  special  conditions  under  which  the 
work  is  done,  —  mental,  moral,  and  physical,  —  and  the 
effects  on  the  duration  of  life. 

In  estimating  the  real  wages  3  that  correspond  to  a  certain 
amount  of  nominal  wages,  we  have  to  consider :  — 

1  The  elements  involved  have  been  examined  in  Bk.  I.,  Ch.  V. 

2  Bk.  I.,  Ch.  V.,  §  3. 

3  See  especially  Walker's  Wages  Question,  p.  12.  sq. 


DISTRIBUTION.  327 

I.  Variations  in  the  purchasing  power  of  money.     These 
variations  may  be  due  to  general  causes  l  which  ultimately 
result  in  an  alteration  of  the  general  level  of  prices.     It  is 
the  period  of  transition  that  is  of  practical  importance  in 
the  case  of  labour.     Variations  of  this  kind  may  be  caused 
\)y  a  debasement  of  the  currency,  and  there  can  be  little 
doubt  that  wages  do  not  readily  rise  in  proportion  to  the 
debasement.     Rogers  has  described  the  debasement  of  the 
currency  under  the  Tudors  as  one  of  the  principal  causes 
of  the  subsequent  degradation  of  labour  over  a  long  period; 
and  Macaulay  has  given  a  graphic  account  of  the  suffer- 
ings of  the  labouring  classes  before  the  recoinage  of  1695. 
Similarly,  the  issues  of  inconvertible  notes  in  excess  have 
frequently  caused  a  disturbance  in  real  wages.     On  the 
other  hand,  it  is  probable  in  some  cases  that  a  rise  in  prices, 
due  to  great  discoveries  2  of  the  precious  metals  may  give 
such  a  stimulus  to  trade  and  industry  as  to  cause  a  rise  in 
real  wages. 

Apart  from  these  general  variations  we  must  consider 
also  variations  in  local  prices,  and  in  making  any  estimate 
of  the  real  value  of  nominal  wages  we  must  have  regard 
especially  to  the  principal  items  of  expenditure3  in  the 
class  of  labour  under  review. 

II.  Varieties  in  the  form  of  payment  require  careful  at-  ; 
tention.     Sometimes  the  payment  is  only  partly  in  money,  ; 
especially  in  agriculture.     In  many  parts  of  Scotland  the 
labourers   still  receive  meal,  peats,  potatoes,  etc. ;   often 
there  are  cottages  and  allotments,  and  sometimes  a  right 
of  grazing  for  so  much  stock.     In  former  times  the  use  of 
a  certain  amount  of  land  was  the  most  common  form  of 
wages ;  it  is,  in  fact,  the  correlative  form  of  labour  rent. 

III.  Opportunities  for  extra  earnings  are  sometimes  of 

1  The  causes  are  examined  in  Bk.  III.     The  variations  due  to  them 
are  here  only  noted  for  completeness  of  enumeration. 

2  See  Effects  of  discoveries  of  the  Precious  Metals,  in  my  book, "  Money 
and  Monetary  Problems." 

8  Now  often  spoken  of  as  Working-class  Budgets. 


328  PKINCIPLES  OF  POLITICAL  ECONOMY. 

great  importance,  especially  if  we  take  as  the  wage-earning 
unit  the  family  and  not  the  individual.  At  the  present 
time,  in  Northumberland,  a  "hind"  (i.e.,  agricultural  la- 
bourer) is  more  valued  if  he  has  a  large  working  family 
and  the  family  earnings  are  relatively  large. 

IV.  Regularity  of  employment  must  always   be  taken 
into   account.     One   of   the   most   frequent  errors   is   to 
assume  constancy  of  employment  when  the  reverse  is  the 
case,  and  to  convert  hourly,  daily,  or  weekly  wages  into 
yearly  wages  by  a  process  of  simple  multiplication. 

V.  Liabilities  for  extra  work  on  various  occasions  are 
sometimes  of  importance,  especially  in  cases  in  which  the 
work  done  consists  in  services  rendered. 

Thus,  in  attempting  to  estimate  real  wages,  we  have  to 
consider  all  the  various  discomforts  (and  occasional  com- 
forts) involved  in  the  quantity  of  labour  as  well  as  all  the 
conveniences  which  the  nominal  wages  will  purchase,  and 
tall  the  supplements  in  kind. 

§  3.  Wages  as  Payment  for  Work  done.  From  the  objec- 
tive standpoint,  we  have  to  consider  wages  as  payment 
made  for  a  certain  amount  of  work,  e.g.,  raising  so  many 
foot-pounds,  or  rendering  so  much  service.  The  quantity 
of  labour  (subjective)  is  now  of  importance  only  indirectly 
as  an  obstacle  to  be  overcome,  or  as  affecting  the  efficiency 
of  labour.  To  the  employer  the  vital  economic  considera- 
tion is  not  what  the  labourer  feels,  but  what  he  does ;  and, 
again,  not  what  the  labourer  gets  in  real  reward,  but  what 
his  work  costs.  Efficiency  of  labour  takes  the  place  of 
quantity  of  labour  as  fundamental,  and  real  cost  the  place 
of  real  wages.  The  causes  affecting  the  efficiency  have 
already1  been  examined:  qualities  of  race  (mental  and 
physical),  the  supply  of  food  and  other  necessaries,  sani- 
tary conditions,  intellectual  and  moral  activities  of  vari- 
ous kinds,  and,  finally,  the  elements  embraced  in  division 
of  labour  2  and  the  organisation  of  industry. 

As  regards  the  real  cost  of  labour,  we  must  take  into 
i  Bk.  I.,  Ch.  V.,  §  4.  2  Bk.  I.,  Ch.  VII. 


DISTRIBUTION.  329 

account  not  only  the  money  paid,  but  everything  which 
involves  any  sacrifice  on  the  part  of  the  employer ;  in  brief, 
the  various  elements  noticed  in  the  last  section  as  affect- 
ing the  real  reward  must  be  taken  into  account  conversely 
as  influencing  the  real  cost. 

The  amount  of  work  done  may  be  measured1  in  different 
ways :  (1)  Simply  by  time.  In  this  case,  however,  if  the 
agreement  is  voluntary,  there  is  always  a  tacit  or  expressed 
condition  that  so  much  work  is  done,  measured  by  some 
other  standard  ;  and  if  the  labour  is  forced,  punishment  of 
some  kind  is  used  to  secure  the  same  end.  (2)  In  some  • 
cases  a  definite  task  is  set  to  be  done  in  a  specified  time, 
e.g.,  to  mow  an  acre  of  ^corn  in  a  day.  (3)  Sometimes  | 
the  work  is  measured  by  the  piece,  the  time  being  appar-' 
ently  left  to  the  choice  of  the  worker.  Here,  however,  there 
is,  as  before,  really  a  condition  implied  or  expressed  that 
a  certain  minimum  is  done  in  a  certain  time.  Correspond- 
ing to  these  modes  of  measuring  work,  we  have  time-wages, 
task-wages,  and  piece-wages.  It  will  be  seen,  on  reflection, 
that  the  differences  depend  on  an  adjustment  of  emphasis ; 
domestic  servants,  for  example,  almost  of  necessity,  receive 
time-wages,  but  unless  they  do  a  certain  amount  of  work 
of  a  certain  quality,  they  will  be  dismissed.  The  variety, 
however,  in  the  services  rendered,  makes  an  exact  measure 
of  the  work  impossible.  Again,  in  task-work  or  piece- 
work, the  time  occupied  is  often  of  great  importance,  and 
more  than  proportionately  higher  wages  will  be  paid  if  more 
work  is  compressed  into  a  given  time,  e.g.,  in  all  operations 
dependent  on  the  weather.  Piece-work  done  in  over- 
time, that  is  to  say,  beyond  the  normal  hours  of  work,  is 
generally  more  highly  paid. 

§  4.  Conflict  of  Interests  between  Labourer  and  Employer. 
It  is  to  the  economic  interest  of  the  worker  to  give  a  mini- 
mum quantity  of  labour  for  a  maximum  real  reward ;  of 
the  employer  to  obtain  a  maximum  of  work  at  a  minimum 

1  Cf.  Schloss,  Methods  of  Industrial  Remuneration.  See  also  Eco- 
nomic Journal,  December,  1892. 


330  PRINCIPLES  OF  POLITICAL  ECONOMY. 

real  cost  to  himself.  Thus  the  elements  of  conflict  are 
always  present,  and  are  generally  intensified  by  prejudice 
and  want  of  appreciation  of  the  real  interests  involved. 
To  take  the  simplest  case  :  the  worker  naturally  wishes  to 
work  fewer  hours  a  day  for  higher  wages,  whilst  his 
employer  wishes  for  more  hours'  work  and  less  wages ; 
the  former  is  apt  to  forget  that  wages,  after  a  certain 
point,  must  fall  if  hours  are  reduced,  whilst  the  latter 
does  not  allow  enough  for  the  increased  efficiency  of  short 
hours  and  good  pay. 

But  the  simplest  case  is  not  a  fair  sample  of  the  actual 
complexities  of  the  wages  question.  There  is  not  one  of 
the  elements  which  go  to  make  up  a  "  quantity  of  labour," 
that  may  not  give  rise,  at  any  rate,  to  an  apparent  conflict 
of  interests  ;  and  this  is  equally  true  of  the  corresponding 
real  wages.  When  we  leave  the  simple  elements  of  time 
and  money,  we  may  seem  to  enter  the  region  of  vague 
generalities ;  but  good  and  evil  of  various  kinds  may  be 
very  real,  although  not  capable  of  exact  measurement, 
and  it  is  certain  that  the  real  economic  progress  (or  degra- 
dation) of  the  working  classes  can  only  be  estimated  when 
the  various  conditions  of  life  and  work  are  taken  into 
account.  Between  the  lowest  forms  of  slavery  and  the 
highest  types  of  free  labour  there  are  numberless  grada- 
tions. We  read  of  slaves,  in  ancient  times,  who  were 
treated  by  their  masters  with  the  utmost  respect  and  even 
friendship,  just  as,  in  modern  times,  we  have  instances  of 
nominal  freedom  with  real  slavery. 

It  is  precisely  in  the  determination  of  the  conditions 
of  work,  both  general  and  special,  that  custom  is  often 
of  supreme  importance.  Even  when  time,  money,  and 
quantity  of  work  are  fixed  by  free  contract,  there  are 
always  a  number  of  tacit  conditions  imposed  by  custom, 
as  well  as  others  compulsory  by  law,  which,  as  already 
explained,  may  economically  be  considered  as  a  species  of 
custom. 

In  the  conflict  of  interests  between  labourer  and  ein- 


DISTRIBUTION.  331 

ployer,  custom,  in  the  broad  sense  here  understood,  has 
sometimes  favoured  one  and  sometimes  the  other.  On 
the  whole,  however,  in  tracing  the  history  of  progressive 
societies,  competition  and  freedom  of  enterprise  seem  to 
have  continuously  diminished  the  sphere  of  custom  and 
authority  in  the  determination  of  work  and  wages.  One 
of  the  most  important  and  interesting  of  economic  inquiries 
is  whether,  by  this  process,  the  condition  of  the  working 
classes  has  been  ameliorated ;  for,  if  the  answer  is  in  the 
negative,  the  presumption  may  be  established  in  favour  of 
a  restriction  of  individual  freedom. 

The  difficulty  of  the  question  is  increased  when  we 
observe  that  custom,  in  some  of  its  forms,  has  in  reality 
increased  industrial  freedom,  whilst  appearing  to  fetter  it, 
and  that  sometimes  custom  is,  as  Professor  Marshall  points 
out,1  a  disguised  form  of  slowly  moving  competition. 

§  5.  Harmony  of  Interests  of  Labourer  and  Employer. 
In  many  cases  the  economic  interests  of  labourer  and  em- 
ployer are  only  apparently  in  conflict,  the  difficulty  is 
for  the  stronger  side  to  recognise  the  real  harmony. 
Rogers2  has  observed  that  every  act  of  the  legislature 
that  seems  to  interfere  with  the  doctrine  of  laisser-faire, 
and  has  stood  the  test  of  experience,  has  been  endorsed, 
because  it  has  added  to  the  general  efficiency  of  labour. 
The  principle  involved  may  be  carried  further ;  there 
can  be  little  doubt  that  many  institutions,  laws,  and 
customs,  apparently  only  designed  to  diminish  the  inten- 
sity of  labour,  have  increased  also  the  work  done  for  the 
employer.  Similarly,  a  rise  in  money  wages  has  often 
resulted  in  a  diminution  of  the  cost  of  labour,3  and  that 
cheap  labour  is  dear  labour  has  long  ceased  to  be  a  para-* 

1  Principles,  First  Edition,  p.  14. 

"  Six  Centuries,  p.  528. 

8  The  old  ideas  of  Petty,  Child,  and  other  writers  in  the  seventeenth 
and  eighteenth  centuries  was  that  low  wages  and  high  prices  of  food 
forced  labourers  to  work  at  higher  pressure,  whilst  high  wages  made  them 
lazy.  Cf.  Breatauo,  Arbeitsluhn  und  Arbeitszeit,  Second  Edition,  p.  2, 
and  Appendix. 


332  PRINCIPLES   OF   POLITICAL  ECONOMY. 

dox.1  Especially  when  \ve  regard  the  question  from  the 
national  standpoint,  and  over  a  considerable  period,  does 
this  real  harmony  become  more  apparent. 

At  the  same  time  it  must  be  admitted  that  the  pre-es- 
tablished harmonies  of  writers  like  Bastiat  are  only  tenable 
with  the  supplement  of  an  optimistic  natural  theology. 
The  conflict  of  interests  in  some  points  is  as  real  as  the 
harmony  in  others.  It  is  true  that  a  general  increase  in 
the  national  productive  power  tends  so  far  to  benefit 
all  classes,  and  if  there  is  more  to  distribute,  all  kinds  of 
income  may  possibly  experience  a  rise  simultaneously.  It 
was  a  favourite  doctrine"  with  Adam  Smith  2  that  it  is  not 
the  actual  greatness  of  national  wealth,  but  its  continual 
increase,  which  occasions  a  rise  in  the  wages  of  labour, 
and  his  argument  assumes  that  the  incomes  of  employers 
being  increased,  there  is  more  to  spend  on  labour.  He 
also  maintained,  however,  that  the  most  decisive  mark  of 
the  prosperity  of  any  country  is  the  increase  of  the  num- 
ber of  the  inhabitants.  The  theory  of  wages,  implied 
rather  than  expressed  in  the  first  position,  is  at  any  rate 
incomplete,  and  in  spite  of  the  second,  may  be  easily 
turned  or  twisted  into  the  wages-fund  theory,  from  which 
Mill  made  such  unfortunate  and  unsound  deductions. 
But  Adam  Smith  was  always  as  much  a  historian  as  a 
theorist,  and  he  gives  important  examples  3  of  the  process 
that  he  goes  on  to  explain.  But  it  is  clear  that  though 
the  general  increase  in  wealth  may  increase  all  incomes, 
it  may  do  so  very  unequally,  and,  in  spite  of  an  average 
rise,  in  some  cases  may  be  accompanied  by  a  diminution. 
Thus  there  is  always  room  for  conflict ;  profits,  rents,  and 
wages  may  rise  together,  but  a  rise  in  one  may  also  be  due 
to  a  fall  in  one  or  both  of  the  others.  More  broadly,  the 
general  economic  condition  of  all  classes  may  be  improved 

1  See  The  Economy  of  High  Wages,  by  J.  Schoenhof,  for  an  excellent 
collection  of  modern  instances.  2  Bk.  I.,  Ch.  VIII. 

8  E.g.,  the  growth  of  the  American  Colonies  is  contrasted  with  the 
stationary  state  of  China. 


DISTRIBUTION.  333 

at  the  same  time ;  it  is  also  possible,  however,  that  one 
class  may  benefit  at  the  expense  of  the  rest. 

§  6.  The  Natural  Rate  of  Wages.  The  older  economists 
supposed  that  there  was  a  certain  "  natural "  rate  about 
which  "  market "  wages  oscillated,  and,  in  general,  they 
also  assumed  that  this  rate  was  determined  under  a  system 
of  freedom  of  competition  by  the  cost  of  producing  and 
maintaining,  at  a  certain  standard,  a  certain  number  of 
labourers.1  Recent  economists,  however,  have  objected  to 
the  use  of  the  term  natural  as  a  question-begging  epithet 
which  implies  a  necessity  that  does  not  exist  in  fact  and 
which  may,  in  idea,  be  either  optimistic  or  pessimistic,  ac- 
cording to  the  philosophical  bias  of  the  writer.  Accord- 
ingly, they  have  substituted  the  colourless  term  normal.2 
The  change,  which  at  first  was  one  of  words  only,  has  in 
process  of  development  been  associated  with  a  change  of 
doctrine.  This  change,  in  substance,  will  be  examined 
later  on ;  at  present  we  only  need  observe  that,  instead  of 
confining  the  term  to  the  results  of  free  competition  over 
a  long  period,  they  have  extended  it  so  as  to  embrace  the 
meaning  suggested  by  its  etymology ;  and  normal,  as  used 
in  political  economy,  is  defined  as  the  adjective  corre- 
sponding to  economic  law. 

With  this  wide  meaning,  however,  it  is  clear  that  the 
temporary  fluctuations  of  market  rates  may  be  described 
as  normal,  equally  with  the  average  rates  found  by  taking 
considerable  periods.  We  may  also  speak  of  the  normal 
values  determined  by  monopolies  and  combinations,  equally 
with  the  normal  value  of  free  competition.  All  economic 
phenomena  are  subject  to  laws,  if  only  these  laws  can  be 
discovered,  and  in  this  sense  every  economic  effect  is  the 
normal  result  of  certain  causes. 

It  might  be  thought,  at  first  sight,  that  this  indefinite 

1  The  clearest  statement  of  this  doctrine  is,  perhaps,  that  of  McCul- 
loch,  Principles,  Pt.  III.,  Ch.  II.  (Edition  1843). 

2  C/.  Marshall's  Economics  of  Industry  (Edition  1879),  Bk.  II.,  Chs.  I. 
and  XIII.,  with  the  later  treatment  of  "  Normal  "  in  his  Principles,  p.  84. 


334  PRINCIPLES   OF  POLITICAL  ECONOMY. 

expansion  of  the  term  "  normal "  (or  natural)  has  been  un- 
fortunate, because  for  a  meaning  definite  and  particular  we 
have  substituted  one  that  is  indefinite  and  general.  But 
the  truth  is  that  the  older  meaning  was  only  definite  be- 
cause it  was  false.  It  really  implied  that  if  time  were 
allowed  for  the  full  play  of  competition,  the  average  real 
wages  in  particular  employments  .would  conform  to  the 
general  average  of  all  wages  in  all  employments ;  in  other 
words,  that  the  oscillations  about  a  fixed  point,  or  above 
and  below  a  certain  surface,  would  balance  one  another. 
The  favourite  illustration  was  the  waves  and  the  sea  level. 
It  was  supposed  that  the  natural  level,  or  the  general  rate 
on  the  average  over  a  long  period,  could  be  determined 
without  reference  to  the  temporary  and  local  disturbances 
of  markets.  This  natural  level  depended  on  the  standard  of 
comfort,  which  again,  after  certain  allowances  were  made, 
was  supposed  to  be  uniform  over  the  whole  country  con- 
sidered ;  some  writers,  indeed,  allowed  that  this  standard 
was  subject  to  slow  variations,  but  it  was  assumed  that  the 
supply  of  labour  would  always  be  adjusted  to  the  standard 
of  its  day  and  generation.  There  were  also,  it  is  true,  per- 
manent and  natural  causes  of  differences  of  wages  in  dif- 
ferent employments,  but  having  regard  to  these,  all  wages 
might  be  considered  as,  in  the  long  run,  about  equal. 
McCulloch,  as  usual,  may  be  taken  as  representing  the 
ultra-orthodox  school.  "  When,"  he  writes,  "  the  cost  of 
their  education,  the  chances  of  their  success,  and  the  vari- 
ous disadvantages  incident  to  their  professions  are  taken 
into  account,  those  who  receive  the  highest  wages  are  not 
really  better  paid  than  those  who  receive  the  lowest.  The 
wages  earned  by  the  different  classes  of  workmen  are 
equal,  not  when  each  individual  earns  the  same  number  of 
shillings  or  of  pence  in  a  given  time,  but  when  each  is  paid 
in  proportion  to  the  severity  of  the  labour  he  has  to  per- 
form, to  the  degree  of  education  and  skill  that  it  requires, 
and  to  the  other  causes  of  variation  already  specified.  So 
long,  indeed,  as  the  principle  of  competition  is  allowed  to 


DISTRIBUTION.  335 

operate  without  restraint,  or  each  individual  is  allowed  to 
employ  himself  as  he  pleases,  we  may  be  assured  that  the 
higgling  of  the  market  will  adjust  the  rate  of  wages  in  the 
different  employments  on  the  principle  now  stated,  and 
that  they  will  be,  all  things  considered,  nearly  equal.  If 
wages  in  one  employment  be  depressed  below  the  common 
level,  labourers  will  leave  it  to  go  to  others,  and,  if  they 
be  raised  above  that  level,  labourers  will  be  attracted  to  it 
from  those  departments  where  wages  are  lower,  until  their 
increased  competition  has  sunk  them  to  the  average  stand- 
ard. A  period  of  greater  or  less  duration,  according  to 
the  peculiar  circumstances  affecting  each  employment,  is 
always  required  to  bring  about  this  equalisation.  But  all 
inquiries  that  have  the  establishment  of  general  principles 
for  their  object,  either  are,  or  should  be,  founded  on  periods 
of  average  duration ;  and  whenever  such  is  the  case,  we 
may  always,  without  falling  into  any  material  error,  assume 
that  the  wages  earned  in  different  employments  are,  all 
things  taken  into  account,  about  equal."  1 

This  doctrine  of  the  real  equality  of  wages  obviously  1 
rests  on  the  foundation  of  a  natural  rate  of  wages,  and  is  \ 
supposed  to  be  brought  about  by  the  action  of  free  com-  I 
petition ;    equality   means   levelling,    and   the   level  is  a 
certain  standard  of   comfort  that  can  only  change  over 
considerable  periods. 

The  fallacy  involved  in  this  doctrine  in  the  extreme 
form  is  so  gross,  that  it  may  be  exposed  by  simply  looking 
to  the  ideas  the  words  stand  for.  It  amounts  to  saying 
that  a  given  quantity  of  labour  over  an  average  period 
tends  to  obtain  the  same  real  reward ;  or,  in  less  technical 
language,  that  all  kinds  of  labourers,  taking  one  thing 
with  another,  obtain  an  equal  amount  of  happiness  as  the 
result  of  their  toil ;  that  freedom  of  competition  tends,  in 
the  long  run,  to  give  the  same  balance  of  agreeable  feel- 
ings to  all  classes  of  workers,  from  the  lowest  to  the 
highest. 

1  McCulloch,  op.  cit.,  p.  :J27. 


336  PRINCIPLES  OF  POLITICAL  ECONOMY. 

If,  however,  wages  were  equal  from  this  subjective 
standpoint,  they  could  not  also  be  equal  from  the  objective 
standpoint,  unless  we  also  assume  that  all  labour  is  equally 
efficient,  and  that  the  products  of  equal  "  quantities  of 
labour  "  (i.e.,  disagreeable  feelings)  always  sell  at  the  same 
price.  But  it  is  quite  clear  that  no  such  simple  harmony 
exists.  In  the  same  line  of  employment,  competition  tends 
to  proportion  wages  to  the  efficiency  of  the  worker,  or  to 
the  quantity  of  work  done;  and  wages  in  different  employ- 
ments, as  will  be  shown  later  on,  depend  on  a  number  of 
causes  of  which  the  feelings  of  the  workers  are  only  one. 

At  the  same  time,  there  is  an  element  of  truth  in  the 
theory :  under  the  system  of  industrial  competition,  labour 
tends  to  flow  into  those  occupations  in  which  "  wages  are 
above  the  common  level,"  and  conversely.  It  must  always 
be  remembered  that  the  average  child  may  be  trained  to 
any  ordinary  employment  or  profession ;  the  choice  de- 
pends in  general  not  on  the  special  aptitudes  of  the  child, 
but  on  the  means  and  circumstances  of  the  parent.  But  it 
is  one  thing  to  say  that  any  rates  above  or  below  the  level 
are  unstable,  so  far  as  certain  forces  are  concerned,  and 
quite  another  to  say  that  the  final  result  of  this  instability 
must  be  equality.  If  the  economic  conditions  of  a  society 
are  subject  to  constant  change,  certain  causes  may  have 
failed  to  produce  their  full  effect  before  other  causes  come 
into  play. 

§  7.  The  Normal  Rate  of  General  Wages.  Are  we  then 
to  say  that  the  normal  rate  of  general  wages  is  practically 
an  unmeaning  expression,1  and  that  "  normal "  only  implies 
certain  laws  that  cannot  be  discovered,  and  "  general "  an 
average  that  cannot  be  struck?  By  no  means ;  the  expres- 
sion has  a  very  real  meaning,  and  some  progress  has  been 
made  towards  the  solution  of  the  corresponding  problem. 

It  is  no  doubt  difficult,  when  we  consider  the  immense 
variety  of  "  occupations  "  in  any  civilised  country,  and  the 
constant  changes  which  are  taking  place,  to  form  an  ade- 
1  Such  is  the  opinion  of  Mr.  Drvas. 


DISTRIBUTION.  337 

quate  conception  of  the  general  rate  of  wages.  At  the 
same  time,  however,  no  one  will  deny  that  if  sufficient 
statistics  are  forthcoming,  we  can  estimate  the  real  prog- 
ress of  the  working  classes  over  a  given  period,  or  that  we 
can  compare  their  relative  positions  in  different  countries. 
The  estimate  may  be  only  approximate  and  the  comparison 
rough,  but  as  far  as  they  go  they  are  real.  The  difficulties 
presented  are  of  the  same  kind  as  those  met  with  in  the 
determination  of  the  value  of  money,  or  the  general  level 
of  prices,  and  may  be  overcome,  to  some  extent,  by  the 
same  methods.  An  "  index  number  "  may  be  formed  by 
taking  various  kinds  of  labour  as  fair  samples,  and  the 
nominal  wages  first  taken  may  be  corrected  by  a  consider- 
ation of  the  elements  in  the  real  wages  to  which  they  cor- 
respond. Care  must  be  taken,  however,  that  the  quantity  I 
and  quality  of  labour  compared  at  different  times  l  and  ' 
places  are  the  same,  just  as  in  the  case  of  commodities 
similar  precautions  are  necessary. 

In  a  work  of  this  kind,  the  business  of  which  is  to 
unfold  principles,  nothing  ought  to  be  taken  for  granted 
on  the  score  of  familiarity.  Accordingly  I  may  observe 
that  the  adoption  of  "index  numbers,"  or  any  other 
method  of  striking  an  average  by  taking  samples,  neces- 
sarily assumes  that  there  are  certain  general  causes  and 
conditions  operating  upon  all  the  class  from  which  the 
samples  are  taken.  If  this  assumption  is  not  made  we 
can  never  pass  from  the  samples  to  the  class.  We  can- 
not, for  example,  calculate  the  average  height  of  the 
people  of  a  country  by  taking  samples  of  the  heights  of 
the  houses  and  chimneys.2  Similarly  we  cannot  argue 
because  the  prices  of  22  commodities  have  fallen,  that 
the  prices  of  22,000  other  commodities  have  also  fallen, 
unless  we  assume  that  movements  in  prices  are  due,  in 

1  The  difficulties  are  well  set  forth  and  good  illustrations  are  given  by 
Cunningham,  Vol.  II.,  Appendix  1. 

2  We  might  do  so,  however,  if  we  made  the  assumption  constantly 
implied  in  GnUircr''s  Travels. 


338  PRINCIPLES  OF  POLITICAL  ECONOMY. 

part  at  least,  to  general  causes.  We  must,  if  the  infer- 
ence is  to  be  at  all  accurate,  go  farther  than  this  and 
assume  that  in  the  22  articles  the  causes  affecting  the 
relative  prices  have,  on  the  whole,  balanced  one  another, 
and  thus  left  the  movement  due  to  general  causes  open  to 
measurement.1 

To  resume  the  main  argument:  however  difficult  it 
may  be  to  measure  the  general  rate  of  wages  in  the  same 
country  at  different  times,  or  in  different  countries  at  the 
same  time,  there  is  no  doubt  that  we  can  distinguish 
between  the  causes  that  affect  wages  generally  and  those 
that  affect  some  particular  kind.  The  distinction  was 
drawn  and  developed  by  Adam  Smith,  and  has  been 
adopted  by  all  subsequent  writers.  Where  the  conflict  of 
opinion  arises  is  as  to  the  nature  and  number  of  the  gen- 
eral and  special  causes  respectively. 

In  most  economic  treatises  since  Ricardo,  by  a  "  country  " 
or  "  nation  "  is  understood  an  area  or  population  through- 
out which  industrial  competition  may  be  considered  as  the 

1  If  it  be  assumed  that  mere  changes  in  currency  cannot  ultimately 
disturb  relative  values,  it  follows  that  after  time  has  been  given  for  re- 
adjustment, such  changes  must  have  operated  uniformly.  If,  then,  a 
number  of  commodities  be  selected,  the  relative  values  of  which  have 
remained  comparatively  steady  (that  is  to  say,  which  have  not  suffered 
any  considerable  change  in  the  conditions  of  production  or  demand),  the 
movement  in  prices  in  these  commodities  must  be  ascribed  to  causes  of  a 
general  kind.  Hitherto,  so  far  as  I  know,  no  one  has  attempted  to  select 
commodities  with  this  principle  definitely  in  view.  "  The  only  mode  of 
eliminating  these  fluctuations,"  says  Jevons,  Currency  and  Finance,  p.  26, 
"is  to  render  our  inquiry  not  more  exclusive  but  more  inclusive."  The 
assumption  is  that  the  variations  of  some  will  compensate  those  of  others. 

If  the  surface  of  a  lake  or  reservoir  were  still,  the  fall  or  rise  during 
any  period  might  plainly  be  measured  at  any  point.  If  there  were  great 
waves  and  the  measure  were  taken  from  a  boat,  an  average  of  soundings 
must  be  made  to  determine  the  rise  or  fall  in  the  depth  of  the  water. 
Similarly  the  index  numbers  of  particular  commodities  will  furnish  a 
measure  of  any  general  alteration  in  the  height  of  prices.  If  relative 
values  remained  absolutely  steady  a  movement  in  the  price  of  any  single 
commodity  would  measure  the  movement  of  the  whole ;  but  if  relative 
values  change  a  compensatory  method  must  be  adopted. 


DISTRIBUTION.  339 

principal  economic  force  in  the  distribution  of  wealth,  and 
in  which  laws  and  customs  are  supposed  to  have  compara- 
tively little  effect.  Thus  Mill:  "Competition  must  be 
regarded  in  the  present  state  of  society  as  the  principal 
regulator  of  wages  and  custom  or  individual  character 
only  as  a  modifying  circumstance,  and  that  in  a  compara- 
tively slight  degree."  *  As  already  stated,  however,  in  the 
present  work,  this  view  will  be  adopted  as  provisional 
only,  in  order  to  bring  out  by  contrast  the  earlier  stages  of 
development.  The  theory  of  wages,  then,  may  be  divided 
into  two  parts,  giving  answers  to  two  questions :  1.  What 
are  the  causes  which  determine  the  general  rate  of  wages? 
2.  Why  are  wages  in  some  occupations  and  at  some  times 
and  places  above  or  below  this  general  rate? 

§  8.  The  Wages-Fund  Theory.  With  regard  to  the  first 
question,  Adam  Smith,  as  in  almost  every  important  eco- 
nomic theory,  gives  an  answer  which  combines  two  views 
which  were  subsequently  differentiated  into  antagonism. 
"  The  produce  of  labour  constitutes  the  natural  recom- 
pense or  wages  of  labour,"  is  the  opening  sentence  of  his 
chapter  on  wages.2  But  then  he  goes  on  to  say  that  "this  ; 
original  state  of  things,  in  which  the  labourer  enjoyed  the 
whole  produce  of  his  own  labour,  could  not  last  beyond 
the  first  introduction  of  the  appropriation  of  land  and  the 
accumulation  of  stock."  And  he  thus  arrives  at  the  con- 
clusion that  "  the  demand  for  those  who  live  by  wages,  it 
is  evident,  cannot  increase,  but  in  proportion  to  the  in- 
crease of  the  funds  which  are  destined  to  the  payment  of 
wages."  This  is  the  germ  of  the  celebrated  wages-fund 
theory  which  was  carried  to  an  extreme  by  J.  S.  Mill  and 
others ;  and,  although  Mill  abandoned  the  theory  some 
time  before  his  death,  he  was  unable  to  eradicate  it  from 
his  systematic  treatise,  and  to  reduce  it  to  its  proper  dimen- 
sions. It  is  important  to  observe  that  in  the  -hands  of 

iBk.II.,  Ch.  XI.,§  l. 

2  In  discussing  the  general  rate  of  wages  I  have  made  considerable  use 
of  my  article  "  Wages"  in  the  Encyclop.  Brit. 


340  PRINCIPLES  OF  POLITICAL  ECONOMY. 

Mill  this  theory  was  by  no  means,  as  was  afterwards  main- 
tained by  Professor  Cairnes,  a  mere  statement  of  the  prob- 
lem to  be  solved.  According  to  Cairnes J  the  wages-fund 
theory,  as  given  in  Mill's  Principles?  embraces  the  follow- 
ing statements :  (1)  The  wages-fund  is  a  general  term  used 
to  express  the  aggregate  of  all  wages  at  any  given  time  in 
possession  of  the  labouring  population  ;  (2)  the  average 
wage  depends  on  the  proportion  of  this  fund  to  the  num- 
ber of  people ;  (3)  the  amount  of  the  fund  is  determined 
by  the  amount  of  general  wealth  applied  to  the  direct  pur- 
chase of  labour.  These  propositions  Cairnes  easily  reduces 
to  mere  verbal  statements,  and  he  then  states  that  the  real 
difficulty  is  to  determine  the  causes  which  govern  the 
demand  and  supply  of  labour.  But  the  most  superficial 
glance,  as  well  as  the  most  careful  survey,  will  convince 
the  reader  of  Mill's  chapters  on  wages,  that  he  regarded 
the  theory,  not  as  the  statement,  but  as  the  solution  of  the 
problem.  For  he  applies  it  directly  to  the  explanation  of 
movements  in  wages,  to  the  criticism  of  popular  remedies 
for  low  wages,  and  to  the  discovery  of  what  he  considers 
to  be  legitimate  and  possible  remedies.  In  fact,  it  was 
principally  on  account  of  the  application  of  the  theory  to 
concrete  facts  that  it  aroused  so  much  opposition,  which 
would  have  been  impossible  if  it  had  been  a  mere  state- 
ment of  the  problem. 

The  wages-fund  theory,  as  a  real  attempt  to  solve 
the  wages  question,  may  be  resolved  into  three  proposi- 
tions, which  are  very  different  from  these  verbal  truisms. 
(1)  In  any  country,  at  any  time,  there  is  a  determinate 
amount  of  capital  unconditionally  destined  for  the  pay- 
ment of  labour.  This  is  the  wages-fund.  (2)  There  is 
also  a  determinate  number  of  labourers  who  must  work 
independently  of  the  rate  of  wages,  that  is,  whether  the 
rate  is  high  or  low.  (3)  The  wages-fund  is  distributed 
amongst  the  labourers  solely  by  means  of  competition, 

1  Leading  Principles  of  Political  Economy. 
2Bk.  II.,  Ch.  XL,    §  1. 


DISTRIBUTION.  341 

masters  competing  with  one  another  for  labour,  and 
labourers  with  one  another  for  work,  and  thus  the  average 
rate  of  wages  depends  on  the  proportion  between  wage- 
capital  and  population.  It  follows  then,  according  to  this 
view,  that  wages  can  only  rise  either  owing  to  an  increase 
of  capital  or  a  diminution  of  population,  and  this  accounts 
for  the  exaggerated  importance  attached  by  Mill  to  the 
Malthusian  theory  of  population.  It  also  follows  from 
the  theory,  that  any  restraint  of  competition  in  one  direc- 
tion can  only  cause  a  rise  of  wages  by  a  corresponding  fall 
in  another  quarter,  and  in  this  form  it  was  the  argument 
most  frequently  urged  against  the  action  of  trade  unions. 
It  is  worth  noting,  as  showing  the  vital  connexion  of  the 
theory  with  Mill's  principles,  that  it  is  practically  the 
foundation  of  his  propositions  on  capital  in  his  first  book, 
and  is  also  the  basis  of  the  exposition  in  his  fourth  book 
of  the  effects  of  the  progress  of  society  on  the  condition  of 
the  working-classes. 

It  has  often  been  remarked  that,  in  economics  as  in  other 
sciences,  what  eventually  assumes  the  form  of  the  develop- 
ment of,  or  supplement  to,  an  old  theory,  at  first  appears 
as  if  in  direct  antagonism  to  it,  and  there  is  reason  to  think 
that  the  criticism  of  the  wages-fund  theory  was  carried  to 
an  extreme,  and  that  the  essential  elements  of  truth, 
which  it  contains,  were  overlooked.  In  many  respects  the 
theory  may  be  regarded  as  a  good  first  approximation  to 
the  complete  solution  of  the  problem.  The  causes  which 
it  emphasises  too  exclusively  are  after  all  verce  causce,  and 
must  always  be  taken  into  account.  There  can  be  no 
doubt,  for  example,  that  under  certain  conditions,  a  rapid 
increase  in  the  labouring  population  niav,  cause  wages  to 
fall,  just  as  a  rapid  decline  may  make  them  rise.  The 
most  striking  example  of  a  great  improvement  in  the  con- 
dition of  the  labouring  classes  in  English  economic  history 
is  found,  as  already  shown,  immediately  after  the  occur- 
rence of  the  Black  Death  in  the  middle  of  the  fourteenth  cen- 
tury. The  sudden  and  extensive  thinning  of  the  ranks  of 


342  PRINCIPLES  OF  POLITICAL   ECONOMY. 

labour  was  manifestly  the  principal   cause  of   the   great 
improvement  in  the  condition  of  the  survivors. 

Again,  as  regards  the  amount  of  capital  competing  for 
labour,  the  reality  of  the  cause  admits  of  no  dispute,  at 
any  rate  in  any  modern  society.  The  force  of  the  element 
is,  perhaps,  best  seen  by  taking  a  particular  case,  and 
assuming  that  the  general  wages-fund  of  the  country  is 
divided  into  a  number  of  smaller  wages-funds.  Take,  for 
example,  the  wages  of  domestic  servants,  when  the  pay- 
ment of  wages  is  made  simply  for  the  service  rendered. 
We  may  fairly  assume  that  the  richer  classes  of  the  com- 
munity practically  put  aside  so  much  of  their  revenue  for 
the  payment  of  the  wages  of  their  servants.  The  aggre- 
gate of  these  sums  is  the  domestic  wages-fund.  Now,  if 
owing  to  any  cause,  the  amount  available  for  this  purpose 
falls  off,  whilst  the  number  of  those  seeking  that  class  of 
employment,  remains  the  same,  the  natural  result  would 
be  a  fall  in  wages.  It  may,  of  course,  happen  in  this,  as 
in  other  cases,  that  the  result  is  not  so  much  a  direct  fall 
in  the  rate  of  wages,  as  a  diminution  of  employment  — 
but  even  in  this  case,  if  people  employ  fewer  servants, 
they  must  do  more  work.  Again,  if  we  were  to  seek  for 
the  reason  why  the  wages  of  governesses  are  so  low,  the 
essence  of  the  answer  would  be  found  in  the  excessive 
supply  of  that  kind  of  labour  compared  with  the  funds 
destined  for  its  support.  And  similarly,  through  the 
whole  range  of  employments  in  which  the  labour  is 
employed  in  perishable  services  and  not  in  material  prod- 
ucts, the  wages-fund  theory  brings  into  prominence  the 
principal  causes  governing  the  rate  of  wages,  namely,  the 
number  of  people  competing,  the  amount  of  the  fund  com- 
peted for,  and  the  effectiveness  of  the  competition.  This 
view,  also,  is  in  harmony  with  the  general  principles  of 
demand  and  supply.  If  we  regard  labour  as  a  commodity 
and  wages  as  the  price  paid  for  it,  then  we  may  say  that 
the  price  will  be  so  adjusted  that  the  quantity  demanded 
will  be  made  equal  to  the  quantity  offered  at  that  price, 


DISTRIBUTION.  343 

the  agency  by  which  the  equation  is  reached,  being  com- 
petition. 

But  when  we  turn  to  other  facts  for  the  verification  of 
the  theory,  we  easily  discover  apparent,  if  not  real,  contra-> 
dictions.  The  case  of  Ireland,  after  the  potato  famine,  af- 
fords an  instance  of  a  rapidly  declining  population  without 
any  corresponding  rise  in  wages,  whilst,  in  new  countries, 
we  often  find  a  very  rapid  increase  of  population  accom- 
panied by  an  increase  in  wages.  In  a  similar  manner,  we 
find  that  the  capital  of  a  country  may  increase  rapidly 
without  wages  rising  in  proportion  —  as,  for  example, 
seems  to  have  been  the  case  in  England,  after  the  great 
mechanical  improvements  at  the  end  of  last  century,  up  to 
the  repeal  of  the  Corn  Laws,  —  whilst  in  new  countries, 
where  wages  are  highest,  there  are  generally  complaints 
of  the  scarcity  of  capital.  But,  perhaps,  the  most  striking 
conflict  of  the  theory  with  facts,  is  found  in  the  periodical 
inflations  and  depressions  of  trade.  After  a  commercial 
crisis,  when  the  shock  is  over  and  the  necessary  liquidation 
has  taken  place,  we  generally  find  that  there  is  a  period 
during  which  there  is  a  glut  of  capital  and  yet  wages  are 
low.  The  abundance  of  capital  is  shown  by  the  low  rate 
of  interest,  and  the  difficulty  of  obtaining  remunerative 
investments. 

§  9.  Criticism  of  the  Theory.  This  apparent  failure  of 
the  theory,  at  least  partially,  makes  it  necessary  to  examine 
the  propositions  into  which  it  was  resolved  more  care- 
fully, in  order  to  discover,  in  the  classical  economic  phrase- 
ology, the  "  disturbing  causes."  As  regards  the  first  of 
these  propositions,  —  that  there  is  always  a  certain  amount 
of  capital  destined  for  the  employment  of  labour,  —  it  is 
plain,  that  this  destination  is  not  really  unconditional. 
In  a  modern  society,  whether  or  not  a  capitalist  will  sup- 
ply capital  to  labour,  depends  on  the  rate  of  profit  expected, 
and  this  again  depends,  proximately,  on  the  course  of  prices. 
But  the  theory,  as  stated,  can  only  consider  profits  and 
prices  as  acting  in  an  indirect  roundabout  manner  upon 


344  PRINCIPLES   OF   POLITICAL  ECONOMY. 

wages.  If  profits  are  high,  then  more  capital  can  be  accu- 
mulated, and  there  is  a  larger  wages-fund,  and  if  prices 
are  high,  there  may  be  some  stimulus  to  trade,  but  the 
effect  on  real  wages  is  considered  to  be  very  small.  In 
fact,  Mill  writes  it  down  as  a  popular  delusion,  that  high 
prices  make  high  wages.  And  if  the  high  prices  are  due, 
purely,  to  currency  causes,  the  criticism  is  in  the  main 
correct,  and  in  some  cases,  as  was  shown  above,  high 
prices  may  mean  low  real  wages.  If,  however,  we  turn  to 
the  great  classes  of  employments  in  which  the  labour  is  em- 
bodied in  a  material  product,  we  find  on  examination,  that 
wages  vary  with  prices  in  a  real  and  not  merely  an  illusory 
sense.  Suppose,  for  example,  that,  owing  to  a  great  in- 
crease in  the  foreign  demand  for  our  produce,  a  rise  in 
prices  takes  place,  there  will  be  a  corresponding  rise  in 
nominal  wages,  and,  in  all  probability,  a  rise  in  real  wages. 
Such  was,  undoubtedly,  the  case  in  Great  Britain,  on  the 
conclusion  of  the  Franco-German  war. 

On  the  other  hand,  if  prices  fall  and  profits  are  low, 
there  will  so  far  be  a  tendency  to  contract  the  employ- 
ment of  labour.  At  the  same  time,  however,  to  some  ex- 
tent the  capital  is  applied  unconditionally ;  in  other  words, 
without  obtaining  what  is  considered  adequate  remunera- 
tion, or  even  at  a  positive  loss.  The  existence  of  a  certain 
amount  of  fixed  capital  practically  implies  the  constant 
employment  of  a  certain  amount  of  labour. 

Nor  is  the  second  proposition  perfectly  true,  namely, 
that  there  is  always  a  certain  amount  of  labourers  who 
must  work  independently  of  the  rate  of  wages.  For  the 
returns  of  pauperism  and  other  statistics  show  that  there 
is  always  a  proportion  of  "floating"  labour  sometimes 
employed  and  sometimes  not.  Again,  although,  as  Adam 
Smith  says,  man  is  of  all  baggage  the  most  difficult  to  be 
transported,  still  labour  as  well  as  capital  may  be  attracted 
to  foreign  fields.  The  constant  succession  of  strikes 
shows  that  in  practice  the  labourers  do  not  at  once  accept 
the  "  natural "  market  rate.  Still,  on  the  whole,  this  sec- 


DISTRIBUTION.  345 

ond  proposition  is  a  much  more  adequate  expression  of  the 
truth  than  the  first ;  for  labour  cannot  afford  to  lie  idle  or 
to  emigrate  so  easily  as  capital. 

The  third  proposition,  that  the  wages-fund  is  distributed 
solely  by  competition,  is  also  found  to  conflict  with  facts. 
Competition  may  be  held  to  imply  in  its  positive  mean- 
ing that  every  individual  strives  to  attain  his  own  economic 
interests,  regardless  of  the  interests  of  others.  But  in 
some  cases  this  end  may  be  attained  most  effectively  by 
means  of  combination,  as,  for  example,  when  a  number  of 
people  combine  to  create  a  practical  monopoly.  Again, 
the  end  may  be  attained  by  leaving  the  control  to  govern- 
ment, or  by  obeying  the  unwritten  rules  of  long-established 
custom.  But  these  methods  of  satisfying  the  economic 
instincts  are  opposed  to  competition  in  the  usual  sense  of 
the  term,  and  certainly  as  used  in  reference  to  labour. 
Thus,  on  the  negative  side,  competition  implies  that  the 
economic  interests  of  the  persons  concerned  are  attained 
neither  by  combination,  nor  by  law,  nor  by  custom. 
Again,  it  is  also  assumed,  in  making  competition  the 
principal  distributing  force  of  the  national  income,  that 
every  person  knows  what  his  real  interests  are,  and  that 
there  is  perfect  mobility  of  labour  both  from  employment 
to  employment,  and  from  place  to  place.  Without  these 
assumptions,  the  wages-fund  would  not  be  evenly  dis- 
tributed according  to  the  quantity  of  labour.  It  is,  how- 
ever, obvious,  that  even  in  the  present  industrial  system, 
competition  is  modified  considerably  by  these  disturbing 
agencies ;  and,  in  fact,  the  tendency  seems  to  be  more  and 
more  for  combinations  of  masters  on  one  side,  and  of  men 
on  the  other,  to  take  the  place  of  the  competition  of 
individuals. 

§  10.  Wages  considered  as  paid  from  the  Produce  of 
Labour.  The  attempted  verification  of  the  wages-fund 
theory  leads  to  so  many  important  modifications,  that  it  is 
not  surprising  to  find  that  in  recent  times  the  tendency 
has  been  to  reject  it  altogether.  And  thus  we  arrive  at 


346  PRINCIPLES  OF  POLITICAL   ECONOMY. 

the  development  of  Adam  Smith's  introductory  statement, 
namely,  that  the  produce  of  labour  constitutes  the  natural 
recompense  or  wages  of  labour.  The  most  important 
omission  of  the  wages-fund  theory  is  that  it  fails  to  take 
account  of  the  quantity  produced  and  of  the  price  obtained 
for  the  product.  If  we  bring  in  these  elements,  we  find 
that  there  are  several  other  causes  to  be  considered  besides 
capital,  population,  and  competition.  There  are,  for  ex- 
ample, the  various  factors  in  the  efficiency  of  labour  and 
capital,  in  the  organisation  of  industry,  and  in  the  general 
condition  of  trade.  To  some  extent  these  elements  maybe 
introduced  into  the  old  theory ;  but,  in  reality,  the  point  of 
view  is  quite  different.  This  is  made  abundantly  clear  by 
considering  Mill's  treatment  of  the  remedies  for  low  wages. 
His  main  contention  is  that  population  must  be  rigidly  re- 
strained in  order  that  the  average  rate  of  wages  may  be 
kept  up ;  but,  as  several  American  economists  have  pointed 
out,  in  new  countries,  especially,  every  increase  in  the  num- 
ber of  labourers  may  be  accompanied  by  a  more  than  pro- 
portionate increase  in  the  produce,  and  thus  in  the  wages 
of  labour.  Again,  the  older  view  was  that  capital  must 
be  first  accumulated  in  order  afterwards  to  be  divided  up 
into  wages,  as  if,  apparently,  agriculture  was  the  normal 
type  of  industry,  and  the  workers  must  have  a  store  to  live 
on  until  the  new  crop  was  grown  and  secured.  But  the 
produce  theory  of  wages  considers  that  wages  are  paid 
continuously  out  of  a  continuous  product,  although  in 
some  cases,  they  may  be  advanced  out  of  capital  or  accu- 
mulated stores.  According  to  this  view,  wages  are  paid 
out  of  the  annual  produce  of  the  land,  capital,  and  labour, 
and  not  out  of  the  savings  of  previous  years.  There  is  a 
danger,  however,  of  pushing  -this  theory  to  an  untenable 
extreme,  and  overlooking  altogether  the  function  of  capi- 
tal in  determining  wages ;  and  the  true  solution  seems  to 
be  found  in  a  combination  of  the  "produce"  theory  with 
the  "  fund  "  theory. 

An  industrial  society  may  be  regarded,  in  the  first  place, 


DISTRIBUTION.  347 

as  a  great  productive  machine  turning  out  a  vast  variety 
of  products  for  the  consumption  of  the  members  of  the 
society.  The  distribution  of  these  products,  so  far  as  it 
is  not  modified  by  other  social  and  moral  conditions, 
depends  upon  the  principle  of  "reciprocal  demand."  In 
a  preliminary  rough  classification,  we  may  make  three 
groups,  the  owners  of  land  and  natural  agents,  the  owners 
of  capital,  or  reserved  products  and  instruments,  and  the 
owners  of  labour.  To  obtain  the  produce  requisite  even 
for  the  necessary  wants  of  the  community,  a  combination 
of  these  three  groups  must  take  place,  and  the  relative 
reward  obtained  by  each  will  vary  in  general  according 
to  the  demands  of  the  others  for  its  services.  Thus,  if 
capital,  both  fixed  and  circulating,  is  scanty,  whilst  labour 
and  land  are  both  abundant,  the  reward  of  capital  will  be 
high  relatively  to  rent  and  wages.  This  is  well  illustrated 
in  the  high  rate  of  profits  obtained  in  early  societies. 
According  to  this  view  of  the  question,  the  aggregate 
amount  paid  in  wages  depends  partly  on  the  general  pro- 
ductiveness of  all  the  productive  agents,  and  partly  on 
the  relative  power  of  the  labourers  as  compared  with  the 
owners  of  land  and  capital  (the  amount  taken  by  Govern- 
ment and  individuals  for  taxes,  charity,  etc.,  being  omit- 
ted). Under  a  system  of  perfect  industrial  competition 
the  general  rate  of  wages  would  be  so  adjusted  that  the 
demand  for  labour  would  be  just  equal  to  the  supply  at 
that  rate. 


CHAPTER   XL 

RELATIVE   WAGES. 

§  1.  The  Determination  of  Relative  Wages.  The  deter- 
mination of  the  causes  of  wages  in  different  employments, 
so  far  as  they  depend  upon  industrial  competition,  involves 
the  application  of  the  same  principles  as  in  the  last  chap- 
ter; but  the  application  is  much  more  difficult,  because, 
instead  of  two  great  groups  of  labourers  and  capitalists, 
we  have  a  multitude  of  subdivisions  all  under  the  influence 
of  reciprocal  demand.  Each  of  these  industrial  groups, 
again,  consists  of  employers  and  employed,  and  the  pro- 
portional distribution  of  wages  and  profits  is  a  matter  of 
conflict.  Every  group  might  at  first  be  supposed,  like  a 
great  monopolist,  to  try  to  obtain  as  much  as  possible  of 
the  general  product  of  the  society,  which  is  practically 
measured  in  money.  But  the  conflict  within  the  group 
weakens  its  collective  power  in  bargaining.  At  the  same 
time  the  power  is  still  further  weakened  by  the  competi- 
tion of  master  with  master,  and  man  with  man.  Thus,  the 
idea  of  a  multitude  of  struggling  monopolistic  groups  is 
out  of  place  precisely  in  proportion  as  industrial  competi- 
tion is  effective.  It  is  fortunate,  both  for  the  theory  of 
wages  and  the  progress  of  civilisation,  that  it  is  so ;  for,  all 
that  we  can  predicate,  with  any  probability,  of  a  nation  of 
monopolistic  castes  is  that,  on  the  whole,  less  would  be 
produced  at  a  greater  real  cost.  At  the  present  stage, 
without  anticipating  the  theory  of  value,  it  is  possible,  on 
the  lines  laid  down  by  Adam  Smith,  to  indicate  some  of 
the  principal  causes  of  differences  of  wages  in  different 

348 


DISTRIBUTION.  349 

employments.  In  the  first  place,  it  will  be  shown  that 
both  the  minimum  that  any  class  of  labourers  will  accept, 
and  the  maximum  that  any  class  of  employers  can  give, 
are  both  subject  to  variation ;  and,  secondly,  the  modes  in 
which  industrial  competition  affects  relative  wages  will  be 
examined.  We  shall  thus  be  prepared  to  discuss  in  the 
next  chapter  the  modes  in  which  wages  were  once  mainly 
and  are  still  partially  determined  by  law  and  custom. 

§  2.  The  Minimum  of  Wages  that  Labour  will  accept. 
It  may  be  thought  to  need  no  demonstration  that  the 
lowest  rate  of  wages  that  can  be  permanent  in  any  occu- 
pation must  be  sufficient  to  support  the  labourers,  and  to 
enable  them  one  with  another  to  keep  up  their  numbers.1 
In  most  countries,  however,  in  which  slavery  has  prevailed, 
it  has  been  found  cheaper  to  import  slaves  than  to  rear 
them.  In  most  societies,  also,  in  which  labour  is  free, 
there  is  a  certain  class  —  sometimes  very  considerable  in 
numbers  —  the  members  of  which  do  not  earn  even  the 
bare  necessaries,  and  who  depend,  in  part  at  least,  on  some 
form  of  charity.  In  the  richest  countries  in  the  world, 
at  the  present  day,  the  margin  of  able-bodied  pauperism 
fluctuates. 

When  we  ascend  above  these  low  levels  of  subsistence, 
we  reach  the  strata  in  which  the  standard  of  comfort  be- 
comes still  more  variable  from  class  to  class,  place  to  place, 
and  time  to  time.  The  standard  of  comfort  operates 
mainly  by  affecting  the  supply  of  labour  through  the  birth- 
rate, and  its  working  depends,  not  so  much  on  the  judg- 
ment of  individuals  whether  their  children  will  eventually 
be  as  well  off  as  themselves,  as  on  a  mass  of  customs  and 
opinions  that  may  or  may  not  be  well-founded.  In  some 
countries  people  cannot  marry  under  a  certain  age  or  with- 
out a  certain  amount  of  money,  and  in  others  where  the 
law  is  silent,  the  voice  of  class  sentiment  is  equally  strong. 
It  may  well  happen,  however,  that  in  spite  of  these  restric- 
tions and  ideas  the  supply  of  children  may  be  excessive, 
'  Cf.  Adam  Smith.  Bk.  I.,  Ch.  VIII.  Ricardo,  Ch.  V. 


350  PRINCIPLES   OF  POLITICAL  ECONOMY. 

the  standard  of  comfort  may  fall  in  the  next  generation, 
and  the  process  may  be  continued  indefinitely. 

It  is  to  be  observed  that  at  first  sight  the  standard  of 
comfort  seems  to  operate,  as  a  rule,  most  strongly  in  the 
higher  classes  of  labour,  especially  amongst  the  so-called 
professional  classes,  —  that  is  to  say,  in  these  classes  it 
operates  most  in  retarding  marriage  and  diminishing  the 
number  of  children.  But  these  classes  are  liable  to  be 
increased  from  above  and  below  under  modern  conditions, 
and  in  former  times  the  same  result  was  achieved  through 
the  action  of  different  causes,  especially  charitable  educa- 
tion.1 It  appears,  then,  that  the  standard  of  comfort  is 
not  itself  sufficient  to  determine  the  minimum  of  wages, 
whether  in  the  lower  or  the  higher  grades  of  labour,  —  for 
this  standard  is  itself  variable  and  elastic,  and  only  oper- 
ates indirectly  and  slowly.  Masons,  shoemakers,  and  even 
common  labourers,  as  Adam  Smith  has  shown,  have  for 
long  periods  had  a  higher  minimum  wage  than  curates, 
and  "  that  unprosperous  race  of  men  called  men  of  letters  " ; 
and,  in  our  own  day,  many  artisans  habitually  receive  a 
higher  minimum  than  teachers  and  clerks,  in  spite  of  the 
apparently  higher  standard  of  comfort  of  the  latter. 

It  is  worth  recalling  the  reasons  given  by  Adam  Smith2 
to  show  that  the  wages  of  common  agricultural  labourers 
in  Great  Britain  in  his  time  were  nowhere  regulated  by 
the  lowest  rate  "  consistent  with  common  humanity."  In 
most  cases  the  reasons  apply  with  still  more  force  at  the 
present  time. 

(a)  Summer  wages  —  he  is  referring  to  agricultural 
labour  —  are  always  highest;  but  especially  owing  to  the 
cost  of  fuel,  the  maintenance  of  a  family  is  most  expensive 
in  winter. 

(6)  Wages  do  not  fluctuate  with  the  price  of  provisions, 
and  accordingly  if  the  labourers  can  live  in  the  dear  years 
they  have  a  surplus  over  the  minimum  when  food  is  cheap. 

1  Cf.  Adam  Smith,  Bk.  I.,  Ch.  X.,  p.  2. 

2  Bk.  I.,  Ch.  VIII. 


DISTRIBUTION.  351 

(<?)  Wages  vary  more  from  place  to  place  than  the  price 
of  provisions  :  at  any  given  time  the  latter  may  be  con- 
sidered nearly  uniform  over  the  whole  country.  Thus  if 
the  labouring  poor  can  maintain  themselves  in  places 
where  the  price  of  labour  is  lowest,  they  must  be  in 
affluence  where  it  is  highest. 

(<f)  The  variations  in  the  price  of  labour  not  only  do 
not  correspond  either  in  place  or  time  with  those  in  the 
price  of  provisions,  but  they  are  frequently  quite  opposite.1 
Thus  again  the  average  must  be  above  the  necessary  mini- 
mum. It  will  be  seen  that  the  principle  underlying  these 
various  examples  is  the  same  :  real  wages  are  unequal  —  the 
lowest  rate  supports  life  —  therefore  the  other  rates  must 
yield  a  surplus.  Thus,  if  we  were  to  follow  out  recent 
analogies,  we  might  speak  of  the  surplus  as  labourers'  rent. 

But  after  all  needful  qualifications  have  been  made  as  to 
the  variableness  and  elasticity  of  the  standard  of  comfort, 
the  central  position  of  what  is  really  the  Malthusian 
theory  of  population  remains  unshaken.  The  cheaper  the 
staple  food  («.</.,  rice  or  potatoes  as  compared  with  wheat 
and  meat),  and  other  necessaries  (e.g.,  the  waist-cloth  of  the 
Indian  and  the  Sunday  clothes  of  the  Briton),  so  much 
lower  is  the  minimum  of  wages  that  the  lowest  classes  of 
labour  (ordinary  unskilled  labour)  will  accept,  and  the 
increase  of  population  tends  to  make  the  actual  rate 
approach  the  possible  if  only  like  the  curve,  which 
draws  nearer  and  nearer  to,  but  never  actually  touches,  its 
asymptote. 

The  practical  deduction  so  much  emphasised  by  the 
older  economists  should  not  be  allowed  to  drop  out  of 
sight,  namely,  that  it  is  of  great  practical  importance  for  a 

1  This  point  is  treated  with  much  elaboration  and  with  many  historical 
references.  McCulloch  also  argues  with  later  examples,  that  in  dear 
years  money  wages  are  likely  to  fall,  because  the  labourers  are  more 
anxious  to  work,  and  therefore  the  supply  of  labour  is  increased,  e.g., 
women  and  children  must  work.  Principles  of  Political  Economy,  p. 
389.  See  also  Brentano  :  "Arbfitslohn  nnd  A 


352  PRINCIPLES   OF  POLITICAL  ECONOMY. 

nation  not  to  live  on  the  cheapest  food  attainable,  since  in 
case  of  need  there  would  be  no  inferior  substitute  to  fall 
back  upon.  The  Irish  potato  famine  is  the  usual  and  a 
sufficiently  striking  example.  Precisely  the  same  argu- 
ment may  be  applied  to  all  the  other  necessaries  of  labour : 
clothing,  house-room,  and  education.  It  is  also  equally 
important  to  lay  stress  on  the  position  — to  which  in  recent 
times  more  attention  has  been  paid — that  a  rise  in  the 
standard  of  comfort  does  not  necessarily  mean  a  rise  in 
the  cost  of  labour:  it  may,  on  the  other  hand,  be  more  than 
counterbalanced  by  an  increase  in  efficiency.1 

§  3.  The  Maximum  of  Wages  that  Employers  can  afford. 
It  is  no  more  easy  to  assign  a  precise  maximum  than  a 
precise  minimum  to  wages.  We  may,  of  course,  say  that 
wages  can  never  rise  above  what  the  employers  of  that 
class  of  labour  can  afford  to  give,  but  then  there  is  al- 
ways the  ulterior  question  how  much  can  they  afford, 
and  what  are  the  determining  causes  ?  If  the  labour  con- 
sists of  services  that  perish  in  the  act,  as  in  the  typical  case 
of  domestic  servants,  the  maximum  total  cannot  exceed 
the  surplus  income  of  the  employers  that  is  available  after 
other  necessary  expenses  are  met.  This,  however,  tells  us 
nothing  of  the  rate  of  wages  unless  we  know  the  number 
of  labourers.  But  the  number  depends  on  a  variety  of 
causes,  one  of  which  is  the  rate  of  wages  itself,  and  even 
if  we  knew  the  number  we  obtain  only  an  arithmetical 
average  which  admits  of  being  made  up  by  endless  varia- 
tions in  the  rates  for  different  kinds  of  service.  The  sur- 
plus funds  also,  which  are  put  aside  for  the  employment  of 
labour,  depend  partly  upon  the  incomes  of  employers, 
partly  upon  the  prices  of  other  things,  and  partly  upon 
the  price  of  labour.  Thus,  even  in  this  apparently  simple 
case,  we  cannot  arrive  at  any  precise  maximum  of  wages. 

If  the  labour  is  devoted  to  the  production  of  vendible 
commodities,  again  we  may,  of  course,  always  say  that 
wages  cannot  exceed  the  sum  total  obtained  for  the  articles 
1  Cf.  Schoenhof,  op.  cit.,  and  Brentano,  op.  cit. 


DISTRIBUTION.  353 

sold ;  but  a  maximum  of  this  kind  is  obviously  liable  to 
variation.  We  have  to  consider  also  what  minimum  share 
must  be  given  to  the  other  contributing  factors,  whether 
of  labour  or  of  capital,  before  the  maximum  of  the  wages 
under  consideration  can  approach  any  degree  of  definite- 
ness.  Thus  the  same  difficulties  reappear,  and  below  them 
is  the  still  deeper  difficulty:  what  causes  determine  the 
amount  and  the  price  (per  unit)  of  the  vendible  commodity 
out  of  which  both  wages  and  profits  are  to  be  paid  ?  The 
answer  to  this  question  obviously  presupposes  the  theory 
of  value.1 

It  appears,  then,  as  the  conclusion  of  the  argument  of  the 
last  three  sections,  that  there  is  no  short  and  simple  rule 
by  which  the  normal  rate  of  wages'  in  any  employment  can 
be  determined  over  a  long  period  or  in  the  long  run.     We 
cannot  assign  with  any  degree  of  precision  the  superior 
and  the  inferior  limits  between  which  it  must  lie,  and  thus 
we  cannot  fix  upon  any  point  about  which  the  market  rates 
must  oscillate.     What  we  can  do,  however,  is  to  point  out 
certain  circumstances  which  cause  certain  classes  to  obtain 
more  or  less  as  their  shares  in  the  annual  produce  of  the 
society.    Following  Adam  Smith's  classical  treatment,  these  \ 
causes  may  be  divided  into  two  groups :  (1)  natural,  or    1 
those  dependent  on  the  nature  of  the  employment ;  (2)  ar-    I 
tificial,  or  those  due  to  "  the  policy  of  Europe." 

§  4.  Natural  Causes  of  Differences  of  Wages  in  Different 
Employments.  Adam  Smith's  enumeration  and  explana- 
tion of  the  natural  causes  of  differences  has  been  so  fre- 
quently quoted  and  is  so  well  known  that  only  a  short 
abstract  seems  necessary.  It  is  worth  observing,  however, 
that  here,  as  throughout  his  work,  Adam  Smith  applies  his 
principles  to  the  highest  as  much  as  to  the  lowest  grades 
of  labour,  and  draws  his  illustrations  from  the  wages  of 
lawyers,  clergymen,  and  artists,  just  as  much  as  from  those 
of  common  sailors,  soldiers,  and  colliers. 

(1)  The  agreeableness  or  disagreeableness  of  the  employ-  ' 
1  This  subject  in  the  present  work  is  discussed  in  Bk.  III. 


354  PRINCIPLES  OF   POLITICAL   ECONOMY. 

ment  is  illustrated  by  two  classical  examples  :  "  honour 
makes  a  great  part  of  the  reward  of  all  honourable  profes- 
sions," and  "the  most  detestable  of  all  employments, 
that  of  public  executioner,  is,  in  proportion  to  the  work 
done,  better  paid  than  any  common  trade  whatever." 
There  is,  however,  much  truth  in  Mill's  criticism,  that  in 
many  cases  the  worst  paid  of  all  employments  are  at  the 
same  time  the  most  disagreeable,  simply  because  those 
engaged  in  them  have  practically  no  other  choice.  (2)  The 
easiness  and  cheapness,  or  the  reverse,  of  learning  the  busi- 
ness. This  factor  operates  in  two  ways.  A  difficult  busi- 
ness implies,  to  some  extent,  peculiar  natural  qualifications, 
and  it  also  involves  the  command  of  a  certain  amount  of 
capital  to  subsist  on  during  the  process  of  learning,  and 
thus  in  both  respects  the  natural  supply  of  labour  is  limited. 
(3)  The  constancy  or  inconstancy  in  the  employment,  — 
a  point  already  noticed  under  real  wages.  (4)  The  great 
or  small  trust  reposed  in  the  workmen,  an  important  con- 
sideration in  all  the  higher  grades  of  labour,  e.g.,  bankers, 
lawyers,  doctors,  etc.  (5)  The  chance  of  success  or  the 
reverse.  Here  it  is  to  be  observed  that,  owing  to  the  hope- 
fulness of  human  nature  and  the  influence  of  the  gambling 
spirit,  the  chance  of  success  is  generally  overestimated,  and, 
therefore,  that  the  wages  in  employments  where  the  chance 
of  success  is  really  small  are  lower  than  they  ought  to  be. 
The  most  striking  instance  is  furnished  by  the  labour  in 
gold  mines,  diamond  fields,  and  the  like,  and  the  same 
cause  also  operates  in  many  of  the  professions. 

All  these  causes  of  differences  of  wages  in  different  em- 
ployments may  be  explained  by  showing  the  way  in  which 
they  operate  on  the  demand  and  supply  of  labour  in  any 
particular  group.  If  the  "  net  advantages,"  to  adopt  Pro- 
fessor Marshall's  phraseology,  of  any  group  are  relatively 
high,  then  labour  will  be  directly  attracted  to  that  group, 
and  the  children  born  in  it  will  be  brought  up  to  the  same 
occupation,  and  thus  in  both  ways  the  supply  of  labour  will 
be  increased.  But  the  "  net  advantages "  embrace  the 


DISTRIBUTION.  355 

conditions  just  enumerated.  Again,  if  the  other  members 
of  the  community  require  certain  forms  of  labour  to  a 
greater  extent,  there  is  an  increase  in  the  demand  and 
a  rise  in  their  price. 

§  5.  Conditions  of  the  Operations  of  the  Natural  Causes. 
It  is  important  to  notice  the  conditions  laid  down  by  Adam 
Smith,  in  order  that  these  natural  causes  may  have  their 
full  effect.1  (1)  In  the  first  place,  at  the  outset,  he  states 
that  the  employments  compared  must  be  in  the  same  neigh- 
bourhood. In  modern  phraseology  this  implies  that  the 
mobility  of  labour  is  practically  perfect,  that  the  labourers 
know  the  conditions  of  work  in  different  trades 2  and  can 
move  readily  from  place  to  place  and  employment  to  em- 
ployment. (2)  The  employments  considered  must  be 
well  known  and  long  established.  In  new  trades,  other 
things  being  equal,  the  projector  can  only  attract  sufficient 
labour  by  offering  higher  wages.  In  trades  also  in  which 
fashion  changes  rapidly,  the  same  cause  operates.  (3)  The 
employments  must  be  in  their  natural  (or  normal)  state. 
"  The  demand  for  almost  every  different  species  of  labour 
is  sometimes  greater  and  sometimes  less  than  usual."  Thus 
in  agriculture,  wages  vary  with  the  seasons,  in  the  army 
and  navy  with  war  or  peace,  in  many  industries  with  the 
price  of  the  produce,  which  again  varies  according  to  the 
quantity.  (4)  The  trades  considered  must  be  the  sole  or 
principal  employments  of  those  who  occupy  them.  The 
principle  involved  is  that  when  a  person  obtains  his  sub- 
sistence from  one  occupation,  he  may  work  in  his  leisure 
at  another,  for  less  wages  than  would  otherwise  correspond 
to  the  nature  of  the  employment.  We  have  instances  in 
various  domestic  industries.  Here,  however,  as  Mill  ob- 
serves, we  must  distinguish  between  the  case  in  which  the 
price  depends  mainly  on  the  domestic  supply  and  the  case 
in  which  the  price  is  governed  by  an  outside  market.  A 
good  illustration  of  Adam  Smith's  meaning  is  found  in  the 

1  Bk.  I.,  Ch.  X.,  Introduction. 

2  In  Scotland  artisans  are  commonly  called  tradesmen. 


356  PRINCIPLES   OF   POLITICAL   ECONOMY. 

lo\v  wages  obtained  for  literary  work,  although,  of  course, 
other  causes  —  e.g.,  honour  or  vanity  —  also  operate. 

§  6.  Artificial  Causes  of  Difference  of  Wages  in  Differ- 
ent Employments.  According  to  Adam  Smith,  the  policy 
of  Europe  has  produced  and  increased  inequalities  in 
wages  in  three  different  modes,  all  of  which  are  treated 
from  the  point  of  view  of  their  effect  upon  competition : 
(1)  In  some  employments  competition  has  been  unduly 
restrained,  as,  for  example,  by  the  action  of  guilds  and  cor- 
porations ;  (2)  in  others  it  has  been  unduly  increased,  as 
in  the  church  by  charitable  education ;  (3)  in  some  cases 
the  free  circulation  of  labour  and  capital,  whether  from 
employment  to  employment  or  place  to  place,  has  been 
obstructed  by  legal  or  customary  regulations.  In  addition 
to  these  modes  of  action,  he  considers  later  on  the  direct 
interference  of  the  law  in  fixing  definite  rates  of  wages. 
Whilst  fully  admitting  the  reasonableness  of  this  arrange- 
ment and  availing  myself,  as  usual,  of  Adam  Smith's 
learning  and  criticisms,  I  find  it  more  in  accordance  with 
the  general  plan  of  this  work  to  adopt  a  different  method 
of  inquiry.  The  subject  is  of  such  importance  as  to 
deserve  a  separate  chapter. 


CHAPTER   XII. 

THE  EFFECTS   OF  LAW   AND   CUSTOM   ON   WAGES. 

§  1.  Modes  in  which  Law  and  Custom  may  affect  Wages. 
It  follows  from  the  analysis  previously  given1  that  law 
and  custom  may  operate  on  wages  —  considered  as  the  net 
reward  of  labour  for  its  toil  —  in  three  ways:  namely,  by 
affecting  (1)  the  quantity  of  labour  and  the  conditions  of 
work ;  (2)  the  amount  and  nature  of  the  real  reward ; 
(3)  the  relations  of  employers  and  employed  in  making 
contracts  for  labour.  In  the  broadest  sense  of  the  terms 
the  third  mode  may  be  said  to  include  the  other  two,  but 
as  stated  it  refers  specially  to  the  relative  powers  of  the 
two  parties,  —  a  topic  of  sufficient  importance  to  deserve 
separate  mention.  In  general,  customs,  social  institutions, 
and  laws  of  various  kinds  affect  these  three  elements 
simultaneously,  though  in  different  degrees. 

§  2.  Slavery,  Serfdom,  and  P atria  Potestas.  In  tracing, 
as  regards  labour,  the  development  of  freedom  of  contract,2 
in  which,  when  perfected,  we  may  suppose  that  both  par- 
ties are  on  an  equal  footing,  we  must  begin  with  the  social 
state  in  which  the  powers  of  the  employer  are  paramount. 
The  two  principal  examples  are  the  relations  of  master 
and  slave,  and  of  the  head  of  a  family  to  its  members.  In 
these  cases  the  term  "contract"  is  used  entirely  as  "a  con- 
venient form  for  the  expression  of  economic  truths  " ;  it  is 
strictly  only  a  quasi-contract,  which,  as  Maine  says,  is  no 

iCh.  x. 

2  Cf.  Maine's  Ancient  Lair,  Ch.  IX.,  for  the  general  development  of 
contract. 


358  PRINCIPLES  OF   POLITICAL  ECONOMY. 

contract  at  all,  that  is  to  say,  by  analogy  we  speak  of  the 
relations  between  the  parties  as  if  they  were  determined 
by  contract,  though  in  reality  they  are  not. 

In  slavery  in  its  rudest  form  the  master  lays  down  the 
conditions  of  work,  and  allots  the  reward  altogether  inde- 
pendently of  the  wishes  of  the  slave ;  he  may  kill  him 
with  overwork  or  with  insufficient  food.  By  the  theory 
of  the  Roman  lawyers,  slavery  was  derived  from  a  sup- 
posed agreement  between  the  victor  and  the  vanquished, 
in  which  the  first  stipulated  for  the  perpetual  services  of 
his  foe,  and  the  other  gained  in  consideration  the  life 
which  he  had  legitimately  forfeited.1 

Slaves  may  be  regarded,  from  the  point  of  view  of  their 
owners,  like  free  labourers  from  the  point  of  view  of  their 
employers,  either  as  sources  of  profit  or  as  causes  of  expen- 
diture. In  ancient  Greece  it  was  a  common  practice  for 
people  to  invest  their  capital  in  slaves,  and  to  make  a 
profit  by  letting  them  out  for  all  sorts  of  industrial  under- 
takings. At  the  same  time  the  poorest  citizen  had  usually 
at  least  one  slave  for  domestic  service.  At  Rome,  towards 
the  end  of  the  republic,  and  still  more  during  the  first  cen- 
turies of  the  empire,  a  person's  social  position  was  esti- 
mated by  the  number  of  slaves  he  maintained.2  From  the 
earliest  times  the  Romans  employed  slaves  even  for  the 
cultivation  of  land,  although  this  was  almost  the  only 
industrial  employment  considered  to  be  consistent  with  the 
dignity  of  a  free  man. 

It  is  impossible  here  to  give  the  steps  by  which  in  pro- 
gressive nations  slavery  gave  place  to  serfdom,  and  serf- 
dom to  free  labour.3  The  causes  were  various  —  legal, 
moral,  political,  as  well  as  economic.  But,  as  already 
shown,  the  discovery,  by  a  long  series  of  tentative  experi- 

1  Maine,  p.  162. 

2  "  Quot  pascit  servos?"  (Juv.  Sat.,  III..  141)  was  the  usual  test  of  a 
man's  expenditure,  just  as  in  modern  times  the  number  and  kind   of 
domestic  servants  might  be  taken  as  a  fair  measure. 

»  Of.  supra,  Bk.  II.,  Chs.  VI.  and  VII. 


DISTRIBUTION.  359 

ments,  that  slave  labour  is  of  all  kinds  the  most  inefficient, 
and  that  punishment  and  authority  are  inferior  to  reward 
and  free  contract,  as  stimulants  to  exertion,  may  be  consid- 
ered as  the  dominant  economic  principle  of  abolition.  It 
is,  however,  important  to  recall  the  fact  that  slavery  still 
exists  over  large  areas,  and  has  only  been  abolished  in  the 
present  century  in  the  English  and  French  colonies  and  in 
the  United  States.1  It  is  still  more  important  to  observe 
that  so  far  as  the  power  of  making  bargains  for  his  labour 
is  concerned,  a  free  person  may,  under  certain  conditions, 
be  little  better  off  than  a  slave,  and  in  effect  he  may  be 
compelled  to  submit  to  any  terms  the  employer  chooses  to 
impose.  Industrial  history  is  full  of  examples  of  these 
one-sided  bargains,  some  of  which  will  be  noticed  in  the 
following  sections. 

Patria  potestas  may  be  regarded  as  originally  a  species 
of  slave  power2  mitigated  by  natural  affection.  The 
varieties  this  power  assumed  in  different  countries  and 
ages,  and  the  modifications  introduced  by  law  and  custom, 
have  given  rise  to  an  extensive  literature.  Here  again 
the  causes  of  emancipation  are  only  partly  economic ;  but 
it  is  doubtful  if  the  disintegration  of  the  family  would 
have  been  effected  but  for  the  action  of  purely  economic 
forces.  At  Rome,  for  example,  the  powers  of  the  father 
over  the  person  became  almost  nominal,  whilst  his  rights 
over  the  property  of  his  son  were  still  practically  unlim- 
ited. In  this  respect  the  utmost  relaxation  under  Justin- 
ian 3  left  the  patria  potestas  "  far  ampler  and  severer  than 
any  analogous  institution  of  the  modern  world."4  It  is 
easy  to  see  that,  under  any  conditions,  the  power  of  the 
father  must  have  been  very  real  so  long  as  he  held  the 


1  The  dates  are  1833,  1848,  and  1865  (end  of  the  Civil  War),  respec- 
tively.    In  1749  the  preamble  to  an  act  of  Parliament  speaks  of  the 
slave  trade  as  one  of  the  most  important  branches  of  British  commerce. 

2  Cf.  Maine's  Ancient  Law,  Ch.  V.,  p.  164,  on  the  relation  of  the  slave 
to  the  family. 

8  Inst.  Lib.  II.,  Tit.  IX.  *  Maine,  op.  cit.,  p.  143. 


360  PRINCIPLES  OF  POLITICAL   ECONOMY. 

purse  of  the  son.  The  gradual  acquisition  of  the  right  of 
separate  accumulation  by  the  members  of  the  family  is 
as  instructive  from  the  economic  as  from  the  legal  stand- 
point ;  but  the  subject  is  too  intricate  for  intelligible  con- 
densation. 

Although  in  modern  industrial  societies  the  individual 
has  taken  the  place  of  the  family,  as  the  unit  of  society, 
to  a  great  extent,  the  power  of  the  parents  over  the  chil- 
dren is  always  considerable.  Some  of  the  greatest  abuses, 
often  amounting  to  criminality,  have  arisen  in  connection 
with  child-labour  permitted  or  enforced  by  the  parents. 
Even  in  the  normal  case  of  natural  affection,  the  choice 
of  employment,  in  the  first  place,  depends  on  the  parents, 
and  they  are  apt  to  regard  the  present  more  than  the 
future. 

§  3.  Apprenticeship.  The  system  of  long  apprentice- 
ships is  a  good  example  of  the  superior  power  of  the 
employer.  The  old  term  of  seven  years,  as  Adam  Smith 
showed,  was  not  necessary  for  instruction,1  even  in  the 
arts,  such  as  watch-making,  which  are  more  difficult  than 
common  trades.  The  system  in  general  tended  to  pro- 
mote idleness  rather  than  industry,  for  the  obvious  eco- 
nomic reason  that  for  so  long  a  period  the  apprentice 
received  no  proportionate  pecuniary  benefit  from  his  work. 
All  the  legislation  on  the  subject  shows  that  the  main 
result  of  the  institution  was  to  lower  wages.  Thus,  pro- 
visions were  constantly  made,  either  by  statute  (e.g.,  the 
statute  of  Apprenticeship,  5  Elizabeth,  c.  4)  or  by  the  by- 
laws of  corporations  and  guilds,  to  restrict  the  number  of 
apprentices  any  master  might  have,  either  indirectly  by 
birth  or  pecuniary  qualifications,  or  absolutely,  or  rela- 
tively to  the  number  of  journeymen.  By  the  statute  just 
referred  to,  whoever  had  three  apprentices  2  must  keep  one 

1  This  opinion  is  confirmed  by  Eden,  Vol.  I.,  p.  430. 

2  This  regulation  —  section  33  —  applies    to    "cloth-makers,    fullers, 
shearmen,  weavers,  tailors,  shoemakers,"  and  not  generally,  as  Brentano 
assumes,  Guilds  and  Trade  Unions,  p.  103. 


DISTRIBUTION.  361 

journeyman,  and  for  every  other  apprentice  above  three,  one 
other  journeyman.  In  order  to  restrict  the  employment  of 
this  species  of  cheap  forced  labour,  the  opposition  to  the 
growth  of  the  factory  system  towards  the  end  of  last  cen- 
tury generally  took  the  form  of  attempts  to  enforce  the 
customary  or  legal  limitation  of  the  employment  of  appren- 
tices. It  was  also  to  the  interest  of  the  masters,  under  the 
old  system  of  small  industries,  that  one  should  not  obtain 
an  unfair  advantage  over  the  rest,  and  they  also  wished  to 
restrict  the  number  of  those  who  might  eventually  become 
masters.  But  with  production  on  a  large  scale,  and  the 
increasing  use  of  machinery,  the  advantage  of  employing 
more  children  than  men  seemed  to  the  employers  too  great 
to  admit  of  restriction,  especially  when  there  was  no  dan- 
ger of  those  children  rising  to  be  masters  themselves. 
Accordingly,  the  statute  of  Apprenticeship  was  repealed 
(1814)  at  the  instigation  of  the  employers  and  against 
the  petitions  of  the  men.1 

The  system  of  parish  apprentices,  by  which  people  were 
compelled  to  take  poor  children  as  apprentices,  at  first 
sight  appears  to  contradict  the  argument  just  advanced, 
for  the  employers  often  considered  this  forced  apprentice- 
ship as  a  burden.2  They  did  so,  however,  only  because 
they  were  compelled  to  take  more  than  they  could  profit- 
ably use.  The  various  acts,3  passed  at  different  times,  en- 
abling masters  to  take  the  children  of  the  poor  into  their 
service  against  their  will,  show  that  in  moderation  it  was 
regarded  as  a  privilege.  Apprentices  under  the  old  sys- 

1  This  topic  is  very  fully  treated  by  Brentano :    Guilds  and  Trade 
Unions,  Part  V. 

2  Nicholls'  Poor  Laics,  Vol.  II.,  pp.  87,  88.    The  parish  apprentices 
were  at  first  bound  up  to  24  (39  Eliz.),  but  the  age  was  restricted  to  21 
(18  George  III.),  in  favour  of  the  apprentices.    Cooke  Taylor's  Modern 
Factory  System,  p.  185. 

8  Cf.  Howell's  Conflicts  of  Labour  and  Capital,  Ch.  VI.,  for  a  full 
account  of  the  existing  system.  At  present,  one  of  the  constant  points  of 
dispute  in  the  Edinburgh  printing  trades  is  as  to  due  proportion  of  ap- 
prentices to  journeymen. 


362  PRINCIPLES  OF  POLITICAL  ECONOMY. 

tern  seem  to  have  been  treated  in  many  cases  with  great 
harshness  and  cruelty,  so  that  the  legislature  was  obliged 
to  interfere.  On  the  introduction  of  the  factory  system, 
these  abuses  were  greatly  increased,  the  labour  of  the 
parish  apprentices  being  the  cheapest  obtainable.  The 
custom  of  apprenticeship  still  prevails  to  a  large  extent, 
and  in  some  trades  the  number  of  apprentices  is  restricted 
in  favour  of  the  journeyman,  the  former  receiving  lower 
wages  for  precisely  the  same  work  towards  the  end  of 
their  time.1 

§  4.  Craft  Guilds.  The  subject  of  apprenticeship  nat- 
urally leads  to  some  consideration  of  the  craft  guilds  of 
which  it  was  an  essential  element.  Since  the  publication 
of  the  work  of  Brentano,  much  attention  has  been  devoted 
to  the  history  of  the  English  guilds,  and  his  position  that 
the  craft  guilds  were  primarily  instituted  to  protect  the 
craftsmen  against  the  richer  members  of  the  merchant 
guilds,  seem  to  be  no  longer  tenable.2  The  craft  guilds 
represented  a  peculiar  form  of  the  organisation  of  industry 
that  was  dominant  during  some  six  hundred  years,  and 
was  only  destroyed  by  the  industrial  revolution  at  the  end 
of  the  eighteenth  century.  The  guilds  themselves,  it  is 
true,  long  before  this  time  3  lost  most  of  their  powers,  but 
the  principles  at  the  basis  of  their  regulations  remained  to 
a  great  extent  in  force,  partly  through  legislation,  and 
partly  through  custom.  The  general  features  of  the  sys- 
tem, when  it  was  in  full  vigour,  are  in  marked  contrast  to 
those  that  prevail  at  present.  In  the  typical  case  before  a 
man  could  practise  any  craft,  he  must  be  a  burgess  of  the 

1  See  note  3,  p.  361. 

2  Dr.  Gross  (Gild  Merchant,  p.  109)  says :  "As  to  a  general  struggle 
throughout  England  between  the  Gild  Merchant  and  the  Craft  Gilds  in 
the  fourteenth  or  any  other  century,  resulting  in  a  victory  of  the  latter  and 
a  demoralisation  of  municipal  government,  all  this  is  a  myth,  for  the  wide 
acceptance  of  which  Brentano  is  mainly  responsible."     Cf.  Cunningham, 
Vol.  I.,Bk.  III.,  Ch.  IV.,  pp.  309-318.    Lambert,  Two  Thousand  Years 
of  Gild  Life,  Ch.  XVIII.,  p.  185. 

8  Cunningham,  Vol.  II.,  p.  45. 


DISTRIBUTION.  363 

town.  If  strangers  were  admitted,  it  was  only  on  payment 
of  a  heavy  fine.  The  craftsman  was  thus  a  privileged 
person,  but  he  was  also  under  the  government  of  the  muni- 
cipal authorities.  When  the  craftsmen  were  sufficiently 
numerous,  they  formed  themselves  into  a  guild,  and  framed 
rules  for  the  regulation  of  their  industry.  In  order  that 
these  regulations  might  be  effective,  membership  of  the 
guild  became  compulsory.  In  this  way  the  element  of 
monopoly  was  introduced,  but  the  natural  consequences 
were  prevented  by  the  authorities  of  the  town,  for  the 
craftsmen  were  always  burgesses  first  and  guild-brethren 
afterwards.  Accordingly,  many  of  the  regulations  referred 
to  the  quality  of  the  work  or  the  use  of  good  materials. 
So  far,  they  resembled  our  laws  against  adulteration,  but 
the  principle  was  carried  much  further. 

As  regards  work,  apprenticeship  was  essential.  The 
apprentices  as  a  rule  must  be  free  born  in  the  town,  the 
number  was  limited,  they  lived  with  their  masters,  and  the 
period  was  generally  seven  years.  It  is  often  still  main- 
tained (in  spite  of  Adam  Smith)  that  the  leading  idea  of 
the  apprenticeship  was  to  ensure  the  skill  of  the  worker. 
The  long  and  uniform  term  of  service,  however,  hardly 
bears  out  this  contention.  We  cannot  suppose  that  all 
trades  presented  equal  difficulty  in  learning,  or  even  that 
most  required  seven  years.  It  is  certainly  remarkable,  as 
pointed  out  by  Mr.  Lambert,1  that  the  same  period  was 
required  under  certain  conditions  to  convert  a  bondman 
into  a  freeman.  Thus  the  fundamental  notion  seems  to 
be  rather  one  of  discipline  and  subjection,2  although  of 
course  the  apprentice  was  also  taught  his  craft. 

It  was  observed  by  Adam  Smith,  that  although  agricul- 
ture is  the  most  difficult  of  all  arts,  there  was  never  in  it 

1  Op.  cit.,  p.  209.     Cf.  Lord  Coke's  opinion,  quoted  by  Eden,  Vol.  I., 
p.  430.    See  also  the  indenture  quoted  by  Cunningham,  Vol.  I.,  p.  316. 
The  apprentice  is  not  to  go  to  any  sport  without  his  master's  leave. 

2  Cf.  Nicholls,  Vol.  I.,  p.  68.    Children  brought  up  to  agriculture  until 
the  age  of  twelve  could  not  be  apprenticed  to  any  other  trade. 


364  PRINCIPLES   OF   POLITICAL   ECONOMY. 

any  system  of  apprenticeship.  This  is  an  error  in  fact,  as 
apprentices  to  husbandry  were  regulated  for  by  the  stat- 
ute of  Apprenticeship.1  But  when  the  craft  guilds  were 
founded,  agricultural  labour  was  unfree  and  serfdom  of 
various  degrees  was  a  species  of  permanent  apprenticeship, 
so  far  as  regulation  of  work  was  concerned.  It  is  worth  not- 
ing also  that,  on  many  occasions  in  history,  real  slavery  has 
been  disguised  under  the  style  and  name  of  apprenticeship. 

The  distinction  between  the  journeyman  and  the  master 
under  the  guild  system  was  not  great,  as  the  number  of 
apprentices  was  limited.  The  necessity  of  this  limitation 
seems  to  be  closely  connected,  as  explained  in  the  last 
section,  with  the  low  payments  made  to  apprentices.2 

Some  of  the  requisitions  of  the  guilds  seem  to  have  been 
expressly  designed  to  restrict  undue  competition.  Thus 
the  employment  of  women  and  strangers  was  often  ex- 
pressly forbidden  under  definite  penalties;  no  one  was 
allowed  to  entice  away  another  man's  apprentices ;  arid 
various  conditions  were  imposed  as  to  hours  of  labour  and 
methods  of  work.  The  official  searchers  exercised  a  gen- 
eral police  superintendence,3  and  offences  were  punished 
with  fines,  and  in  extreme  cases  by  expulsion.  At  the 
same  time,  in  common  with  other  forms  of  guilds,  the 
craft  guilds  were  supposed  to  be  actuated  by  a  spirit  of 
brotherhood ;  they  had  common  feasts  and  religious  cere- 
monies, provisions  were  made  for  assisting  poor  and  sick 
members,  all  were  to  be  summoned  to  weddings  and  funer- 
als, and  "  brethren  and  sisters  were  to  have  the  lights  at 
their  decease,  and  if  in  poverty,  freely."  In  process  of  time, 

*  In  §  25. 

2  In  the  same  indenture  quoted  by  Cunningham  the  apprentices  (A.D. 
1430)  are  to  get  3*.  a  year  in  money  the  first  year,  and  an  annual  increase 
of  3d.  In  his  last  year  (the  eighth)  he  is  to  get  10s.  But  at  this  time, 
according  to  Rogers  (Six  Centuries,  p.  327),  the  wages  of  the  artisan  were 
commonly  6d.  per  day,  and  the  cost  of  maintenance  of  a  labourer  is  put 
down  at  Qd.  to  8d.  per  week. 

8  For  curious  examples  of  the  discipline  of  the  crafts,  see  Bain's  History 
of  the  Aberdeen  Incorporated  Trades. 


DISTRIBUTION.  365 

the  brotherhood  and  equality  of  the  old  guilds  disappeared, 
the  distinction  between  masters  and  men  became  stronger, 
and  the  regulations  were  used  to  keep  up  monopolies 
in  certain  families.1  Oppression  of  the  workmen  was 
associated  with  plunder  of  the  consumer  until  the  guilds 
deserved  Bacon's  description,  "  fraternities  in  evil." 

On  the  whole,  the  conclusion  appears  to  be  justified  that 
the  guilds  were  favourable  to  the  working  classes  only  so 
long  as  employers  and  employed  were  practically  on  an 
equal  footing,  that  is  to  say,  when  there  was  no  real  dis- 
tinction of  classes  and  when  every  apprentice  might  hope  to 
become  a  master.  As  soon  as,  with  the  growth  of  wealth, 
the  masters  became  dominant,  the  guilds  ceased  to  aim  at 
a  fair  day's  wage  for  a  fair  day's  work. 

§  5.  Legislation  with  Respect  to  Masters  and  Servants. 
"  Whenever,"  said  Adam  Smith,  "  the  legislature  attempts 
to  regulate  the  differences  between  masters  and  their  work- 
men, its  counsellors  are  always  the  masters.  When  the 
regulation,  therefore,  is  in  favour  of  the  workmen,  it  is 
always  just  and  equitable,  but  it  is  sometimes  otherwise, 
when  in  favour  of  the  masters."  2  This  partiality  of  legis- 
lation is  rapidly  disappearing  under  the  growth  of  demo- 
cratic influences,  but,  when  Adam  Smith  wrote,  the  appeal 
to  history  generally  confirmed  his  opinion.  Directly  and 
indirectly,  governments  had  attempted  to  regulate  wages 
in  favour  of  the  employers.  The  statutes  of  labourers 
passed  (A.D.  1349-1363)  after  the  occurrence  of  the  Black 
Death  are  the  first  prominent  examples  of  a  series  of  enact- 
ments for  fixing  by  law  the  rates  of  wages  and  hours  of 
labour.  These  acts  were  passed  on  an  emergency,  which, 
for  the  time,  threatened  to  paralyse  industry,  but  they  were 
based  on  principles  which  were  applied  by  the  legislature 
up  to  the  end  of  the  eighteenth  century  and  even  later.3 

1  Brentano,  Guilds  and  Trade  Unions,  p.  85.     The  process  of  decay  is 
very  well  described  in  this  work. 

2  Bk.  I.,  Ch.  X.,  p.  11. 

s  Nicholls'  Poor  Laws,  Vol.  I.,  p.  44. 


366  PRINCIPLES   OF  POLITICAL   ECONOMY. 

First :  they  fixed  rates  of  wages  for  a  large  number  of 
specified  occupations,  and  servants  not  specified  were  to 
be  sworn  before  the  justices  to  do  and  use  their  crafts  and 
offices  in  the  manner  they  were  wont  to  do  in  the  time 
before.  Secondly:  they  compelled  the  labourers,  with 
some  exceptions,  to  stay  winter  and  summer  in  their 
native  place  if  employment  was  forthcoming.  Thirdly: 
they  regulated  the  prices  of  articles  of  food  as  well  as 
labour.1  Fourthly:  the  act  of  1363  regulates  the  diet 
and  clothes  of  the  several  orders  of  men.  The  statutes 
regulating  wages  were  repeated  from  time  to  time  and  cul- 
minated in  the  statute  of  Apprenticeship,  by  which  (and 
the  amending  act  of  James  I.)  the  justices  were  to  assess 
wages  for  all  classes  of  artificers  and  husbandmen.  It  is 
true  that,  by  this  statute,  the  justices  were  to  give  the 
labourers  a  convenient  proportion  of  wages,  both  in  the 
time  of  scarcity  and  the  time  of  plenty,  and  some  writers 
seem  to  have  taken  the  intention  of  the  words  for  the  ful- 
filment of  the  deed.  Eden,2  however,  doubts  whether 
the  justices  of  any  county  after  they  had  once  settled  the 
assize  of  labour  altered  it  once  in  the  course  of  half  a  cen- 
tury, and  this  view  is  confirmed  by  the  small  number  of 
assessments  that  survive.3  Rogers,  on  the  other  hand, 
thinks  the  power  was  used  to  depress  wages.  The  prin- 
ciple of  fixing  labourers  to  their  native  towns  and  villages 
was  on  the  one  side  connected  with  serfdom,  and  on  the 
other  eventually  gave  rise  to  the  laws  of  settlement.  An 
admirable  account  of  the  history  and  economic  effects  of 
these  laws  is  given  by  Adam  Smith.4  He  begins  by  refer- 

1  The  statute  of  1349  only  states  "a  reasonable  price,  having  respect 
to  the  price  that  such  victuals  be  sold  at  in  the  adjoining  places ;  so  that 
the  same  sellers  have  moderate  gains  reasonably  to  be  required  according 
to  the  distance  of  the  place  from  whence  the  said  victuals  be  carried."  The 
act  of  1363  fixes  some  prices  definitely,  e.g. :  a  goose,  4d.;  a  hen,  2d. ;  a 
pullet,  Id. 

2  Vol.  L,  p.  141. 

8  Cf.  Hewins'  English  Trade  and  Finance,  p.  82.  Rogers'  Interpreta- 
tion of  History,  p.  40. 

*  Adam  Smith,  Bk.  I.,  Ch.  X.,  Part  II. 


DISTRIBUTION.  367 

ring  to  the  "  present  state  of  this  disorder,  the  greatest, 
perhaps,  of  any  in  the  policy  of  England,"  and  he  con- 
cludes his  investigation  with  the  remark  that  "there  is 
scarce  a  poor  man  in  England  of  forty  years  of  age  who 
has  not  in  some  part  of  his  life  felt  himself  most  cruelly 
oppressed  by  this  ill-contrived  law  of  settlements."  The 
regulation  of  prices  of  provisions  and  other  goods  was 
much  less  effective  and  was  sooner  abandoned.  Several 
instances,  however,  occur  in  the  time  of  the  Tudors,  and 
it  is  worth  recalling  that  the  laws  relating  to  the  assize  l 
and  price  of  bread  for  London  and  its  environs,  were  only 
repealed  in  1815,  and  in  other  places  seem  to  have  gradu- 
ally fallen  into  desuetude.  Sumptuary  laws,  also,  were 
re-enacted  in  the  time  of  the  Tudors,  and  at  the  present 
day  the  force  of  custom  is  so  great  that  it  seems  odd  if 
people  dress  or  live  above  their  "  station  in  life."  2 

From  the  earliest  times,  we  find  examples  of  legislation 
in  favour  of  the  labourers,  and  it  is  impossible  to  accept 
the  partisan  opinion  of  Rogers,  that  the  various  govern- 
ments concerned  were  consciously  hypocritical.  In  par- 
ticular the  statute  of  Apprenticeship,3  which  he  so  severely 
condemns,  contains  several  provisions  for  the  protection 
of  the  workmen  and  apprentices ;  thus,  a  servant  could 
not  be  dismissed  without  a  quarter's  warning,  and  regu- 
larity of  employment  was  secured  by  yearly  engagements. 
The  preamble  to  the  statute  also  declares  that,  although 
many  laws  had  been  passed  affecting  wages  and  employ- 

1  For  the  early  history,  see  Cunningham,  Vol.  I.,  Appendix  A.    On 
the  times  of  the  practice  of  assessment  of  wages,  see  Cunningham,  Vol. 
II.,  p.  369. 

2  The  jokes  in  Punch  are  sufficient  proof. 

8  Brentano's  opinion  on  this  statute  as  regards  the  workman  is  far  too 
favourable,  and  his  abstract  of  it  is  partly  erroneous.  Thus,  clause  12 
provides  that  from  the  middle  of  March  to  the  middle  of  September  the 
hours  of  those  hired  for  wages  by  the  day  or  the  week  shall  be  from  five, 
or  earlier,  to  between  six  and  eight,  with  intervals  of  2|  hours  maximum 
for  meals  and  sleep,  if  sleep  is  allowed  in  the  day.  Brentano  makes  this 
apply  to  all  workers  under  the  act,  and  calls  it  a  working  day  of  about 
12  hours. 


PRINCIPLES  OF  POLITICAL   ECONOMY. 

ment,  which  at  the  time  had  been  thought  good  and 
beneficial,  yet  these  laws  cannot  be  put  in  execution 
without  great  grief  and  burthen  to  the  poor  labourers  and 
servants,  chiefly  because  "  the  wages  limited  are  too  small 
and  not  answerable  to  this  time,  on  account  of  the  great 
advancement  in  prices."  1 

Adam  Smith  points  out,  that  the  law,  which  obliges 
masters  to  pay  their  workmen  in  money  and  not  in 
goods,  was  just  and  equitable.  These  "  truck  "  acts  may 
be  traced  far  back,2  and  at  the  present  time  their  applica- 
tion is  still  more  thorough  and  extensive.  The  act  of 
1831  is  the  basis  of  the  modern  English  system.  Truck 
(from  the  French  troc)  primarily  signifies  barter  of  com- 
modities, but  when  used  in  connection  with  labour,  refers 
to  the  payment,  or  part  payment,  of  wages  in  goods. 
These  goods  may  be  (<z)  those  actually  produced  by  the 
labourer,  or  (6)  those  articles  that  are  necessary,  or  sup- 
posed to  be  necessary,  for  his  consumption.  Both  forms 
have  been  proved  historically  to  be  liable  to  great  abuses. 
It  is  on  record,  to  take  an  example  of  the  first  method, 
that  the  agricultural  labourers  of  the  cider-producing 
counties,  in  England,  received  from  20  to  50  per  cent  of 
their  wages  in  cider.3  On  the  second  plan,  the  workmen 
were  compelled  to  spend  their  wages  at  stores  conducted 
for  the  profit  of  the  masters.  The  quality  of  goods  was 
inferior,  the  prices  were  high,  and  the  management  was 
inconvenient  to  the  purchasers.  There  was  no  need  for 
advertising  or  for  a  large  staff  of  attendants,  and  there 
were  no  bad  debts,  as  the  wages  could  be  kept  back.  It 
is  interesting  to  contrast  these  masters'  stores  with  those 
managed  on  co-operative  principles.  In  both  we  have 

iNicholls,  Vol.  I.,  p.  167. 

2  For  examples  previous  to  this  century,  see  Leoni  Levi,  British  Com- 
merce, 1st  ed.,  p.  180.     There  is  an  excellent  examination  of  the  truck 
system  in  Walker's  Wages  Question,  Ch.  XVIII.     For  a  brief  summary 
of  the  English  Laws  on  the  subject,  see  Smith's  Mercantile  Law,  10th  ed., 
Vol.  I.,  p.  525. 

3  Mr.  Spender,  quoted  by  Walker,  p.  327. 


DISTRIBUTION.  369 

savings  and  economies,  absence  of  credit  and  a  certain 
amount  of  inconvenience,  but  in  the  latter  the  sum  gained 
in  this  way  goes  to  increase  wages  indirectly  instead  of 
profits  directly. 

It  is  to  be  observed,  however,  that  in  some  cases  truck 
may  be  advantageous,  especially  in  agriculture,  and  the 
truck  acts  do  not  generally  apply  to  that  industry.  The 
allowance  of  a  certain  amount  of  farm  produce,  or  the  right 
to  keep  a  certain  amount  of  stock,  or  to  use  so  much  land, 
may  be  worth  to  the  labourer  more  than  its  rnone}'  value. 

The  abuses  connected  with  "  frame  rents " 1  were 
analogous  to  those  of  the  truck  system.  The  workmen 
were  obliged  to  hire  these  frames  from  the  masters,  and 
the  rates  charged  (A.D.  1779)  sometimes  amounted  to  86 
per  cent  interest.  The  practice  is  first  noticed  in  1745, 
and  in  1779  a  bill  was  introduced  for  preventing  the 
abuses  connected  with  it,  but  it  was  thrown  out.  The 
Truck  Act  of  1831,  although  making  it  illegal  for  the 
employer  to  set  off  goods  supplied  to  the  labourers  against 
his  wages,  makes  no  such  prohibition  of  payments  for 
frame  rents  and  the  like,  and  the  stoppage  of  wages  for 
frame  rents  was  not  abolished  till  1874. 

§  6.  The  Factory  Acts.  The  long  series  of  acts  (from 
1802  to  1891)  relative  to  the  conditions  of  work  in  facto- 
ries and  workshops  deserve  special  attention.  The  abuses 
which  they  were  designed  to  remedy  can  only  be  ade- 
quately realised  by  a  reference  to  the  detailed  accounts 


1  For  a  detailed  account,  see  Brentano,  op.  cit.,  p.  119  ;  Walker,  p.  333, 
where  the  reports  of  the  Commission  of  1844  and  the  Committee  of  1855 
are  quoted.  At  the  latter  date,  frames  earned  24  per  cent  profit  after 
paying  all  expenses  and  interest  on  the  capital.  The  following  passage  is 
from  the  maiden  speech  of  Lord  Byron  in  the  House  of  Lords  (1812),  in 
the  debate  on  the  frame-breakers'  riots  :  "I  have  traversed  the  seat  of 
war  in  the  Peninsula ;  I  have  been  in  some  of  the  most  oppressed  prov- 
inces of  Turkey ;  but  never  under  the  most  despotic  of  infidel  govern- 
ments did  I  behold  such  squalid  wretchedness  as  I  have  seen  since  my 
return  in  the  very  heart  of  a  Christian  country."  —  Moore's  Life  of  Byron, 
Vol.  II.,  p.  126. 


370  PRINCIPLES  OF  POLITICAL  ECONOMY. 

furnished  by  a  mass  of  official  reports.1  The  lurid  picture 
drawn  by  Marx  2  is  in  some  respects  exaggerated  ;  all  the 
masters  were  not  utterly  bad,  and  all  the  evils  cannot  be 
traced  to  the  system  of  work.  Wages  were  in  many  cases 
relatively  high.  At  the  same  time,  some  of  the  evils  were 
so  great  that  exaggeration  seems  impossible.3 

The  accounts  of  the  employment  of  children,  especially 
the  parish  apprentices,  are  in  many  cases  revolting ;  their 
hours  were  often  as  long  as  cruel  punishments  could  exact; 
their  labours  were  only  limited  by  the  necessity  of  obtaining 
a  minimum  of  time  for  sleep  and  nourishment ;  their  food 
was  the  food  of  pigs ;  the  common  decencies  of  life  were 
ignored ;  diseases  abounded,  but  none  were  considered  ill 
if  threats  or  blows  could  make  them  work  ;  the  very  race 
became  dwarfed  and  stunted ;  the  system  was  in  effect 
unmitigated  slavery.4 

As  early  as  1802,  Sir  Robert  Peel 5  brought  in  and  passed 
a  bill  to  limit  the  hours  of  labour  in  woollen  and  cotton 
mills,  and  generally  to  regulate  the  conditions  of  labour 

1  An  excellent  account  —  temperate  and   impartial  —  of  the  Factory 
System,  by  an  able  contemporary  observer,  is  Artisans  and  Machinery, 
by  Dr.  Gaskell  (1836).    He  gives  examples  of  the  contradictory  nature 
of  the  evidence. 

2  Capital,  Parts  III.  and  V.     The  picture  of  facts  must  be  separated 
from  the  peculiar  and,  in  my  opinion,  utterly  erroneous  theory  of  value 
given  in  Capital. 

•Compare  the  Reign  of  Law  (Ch.  VII.),  by  the  Duke  of  Argyll,  in 
general  an  ardent  individualist.  See  also  Cooke  Taylor's  Modern  Factory 
System  (Ch.  VI.);  von  Plener's  History  of  the  Factory  Legislation; 
Threading  my  Way,  by  R.  D.  Owen. 

*  Compare,  for  details,  the  narrative  of  Robert  Blencoe,  quoted  by  Mr. 
Cooke  Taylor,  op.  cit.,  p.  189.  The  apprentices  actually  stole  the  food  of 
the  pigs,  until  the  pigs  became  too  cunning  for  them  ;  they  sometimes 
worked  sixteen  hours  on  end  without  food  or  rest ;  girls  suspected  of  run- 
ning away  had  irons  riveted  on  their  ankles,  reaching  by  long  links  and 
rings  to  their  hips,  and  in  these  they  were  compelled  to  walk  to  and  from 
the  mill,  and  to  sleep. 

6  The  son  of  "parsley  "  Peel  and  the  father  of  the  Free  Trader.  He 
was  himself  an  excellent  master,  beloved  by  his  work-people,  and  is 
described  as  being  to  cotton-printing  what  Arkwright  was  to  cotton- 
spinning. 


DISTRIBUTION.  371 

of  children.  The  working  hours  were  not  to  exceed  twelve, 
three  hours  were  to  be  allowed  for  meals,  instruction  in 
reading,  writing,  and  arithmetic  was  to  be  provided,  the 
rooms  were  to  be  washed  and  ventilated,  and  there  were 
other  beneficial  provisions.  The  act,  however,  remained 
a  dead  letter,  as  no  adequate  means  were  adopted  to  see 
that  the  provisions  were  carried  out.  From  similar  causes 
the  acts  of  1819  and  1820,  passed  under  the  same  auspices, 
also  failed.  It  was  not  till  1832  that  the  legislation  became 
effective  under  the  leadership  of  Lord  Shaftesbury  (then 
Lord  Ashley)  and  Mr.  Sadler.1  Since  that  time  the  prin- 
ciples adopted  have  been  extended  to  all  kinds  of  employ- 
ments, and  men  and  women  as  well  as  children  have 
benefited  by  the  legislative  restriction  of  the  "  quantity 
of  labour"  involved  in  their  work.  At  present,  in  the 
United  Kingdom,  there  is  hardly  any  industry  that  is  not 
subject  to  special  or  general  regulations  in  favour  of 
the  workers.  Mines  and  bake-houses,  shipping  and  agri- 
culture, as  much  as  factories  in  the  popular  sense  of  the 
term,  have  felt  the  power  of  the  law.  Compulsory  and 
free  education,  with  penalties  on  those  who  deprive  chil- 
dren of  their  opportunities,  may  be  regarded  as  the 
latest  development  of  the  ineffective  clause  in  Peel's  Act 
of  1802. 

§  7.  The  Poor  Laws.  An  examination  of  the  long 
series  of  English  Poor  Laws  is,  perhaps,  the  most  in- 
structive and  interesting  example  of  the  application  of 
the  historical  method  to  economic  problems.  One  great 
advantage  of  that  method  is,  that  it  is  a  substitute  for 
experiment,  and  nearly  every  conceivable  plan  of  dealing 
with  the  poor  has  been  tried  in  England  at  different 
times.  That  the  poor  never  cease  out  of  the  land,  and  that 
the  destruction  of  the  poor  is  their  poverty,  were  common- 
places in  the  wisdom  of  the  ancients,  and  are  being  re-dis- 
covered by  the  present,  as  by  every  previous,  generation. 
From  the  nature  of  the  case,  the  condition  of  the  poor 
1  Fielden's  CUM  of  the  Factory  S<;*tem  appeared  in  1836. 


•^ 
»-, 

~c  I 


372  PRINCIPLES  OF  POLITICAL  ECONOMY. 

from  age  to  age  does  not  differ  so  much  as  that  of  the 
higher  classes,  so  that  the  presumption  is  that,  if  a  certain 
mode  of  treatment  failed  once,  when  fairly  tried,  it  will 
always  fail.  The  history  of  the  English  Poor  Laws  is, 
however,  not  merely  a  list  of  hap-hazard  experiments,  but 
is  a  remarkable  instance  of  the  growth  and  development 
of  principles.  All  that  I  can  attempt  in  the  present  sec- 
tion of  this  work  is  a  re-statement  of  these  principles,  so 
far  as  they  bear  on  the  problems  in  hand,  namely,  the 
influence  of  legislation  on  the  relations  of  employers  and 
employed,  and  on  the  conditions  of  labour  and  the  real 
reward  for  toil.1 

The  history  of  the  English  Poor  Laws  may  be  divided 
into  four  periods,2  according  to  the  objects  aimed  at  by 
the  government.  It  may  be  observed,  once  for  all,  that  in 
the  development  of  any  social  institution,3  we  must  not 
expect  that  accentuation  of  principles  which  seems  so 
natural  a  priori.  The  four  periods  are,  no  doubt,  marked 
respectively  with  peculiar  characteristics,  but  in  the  earlier 
periods  we  have  later  ideas  present,  though  not  predom- 
inant. From  the  earliest  times,  we  find  the  poor  divided 
into  two  great  classes;  namely,  the  poor  in  very  deed, 
who,  from  various  causes,  were  unable  to  earn  a  liveli- 
hood, and  the  able-bodied  "sturdy  rogues  and  vagabonds," 
who  preferred  idleness,  diversified  with  crime,  to  regular 
work.  In  the  first  period,  up  to  the  great  act  of  Eliza- 

1  The  literature  of  the  subject  is  very  extensive.    The  State  of  the  Poor, 
by  Sir  F.  M.  Eden  (3  vols.,  4to,  1797),  is  "  the  grand  storehouse  of  infor- 
mation respecting  the  labouring  classes  of  England."  —  McCulloch,  Lit- 
erature of  Political  Economy.     The  Histo)-y  of  the  English  Poor  Law,  by 
Sir  George  Nicholls,  2  vols.,  1854,  is  impartial  and  valuable,  especially 
when  compared  with  the  same  writer's  histories  of  the  Scotch  and  Irish 
Poor  Laws.     The  History  of  Vagrants  and  Vagrancy,  by  C.  R.  Turner, 
is  very  full  and  interesting.     Useful  popular  resumes  are  to  be  found  in 
Fowle's  Poor  Law  (English  Citizen  series :  Macmillan)  and  Mackay's 
English  Poor.     Every  one  should  read  for  himself  the  Poor  Law  Com- 
missioners' First  Eeport  of  1834  (re-printed  1885). 

2  Nicholls,  Vol.  I.,  p.  8. 

8  Of.  Stubbs'  Constitutional  History,  Preface. 


DISTRIBUTION.  373 

beth  (1601  ),*  the  care  of  the  first  class  was  left  to  the 
Church,  to  guilds,  and  to  the  charity  of  private  persons; 
the  efforts  of  the  legislature  were  directed  to  the  suppres- 
sion of  vagabondage,  by  severe  penalties.  Thus,  the  act 
of  13882  ordains  that  beggars  able  to  work  are  to  be  put 
in  gaol ;  and  that  of  1405  recounts  that,  the  king  being 
willing  to  use  softer  means,  and  considering,  also,  the  ex- 
pense of  gaols,  the  penalty  is  to  be  three  days  and  nights 
in  the  stocks,  with  bread  and  water.  In  1531, 3  the  justices, 
mayors,  and  others  are  to  search  for  the  impotent  poor, 
and  give  them  certificates  to  beg  within  certain  limits,  and 
if  an  impotent  beggar  is  found  without  a  license,  he  is  to 
be  whipped,  "  if  it  shall  seem,  to  the  discretion  of  the  high 
constable,  that  it  be  convenient  so  to  punish  such  beggar 
—  if  not,  the  stocks ;  but  if  any  person,  being  whole 
and  mighty  in  body,  and  able  to  labour  .  .  .  begs  ...  he 
is  to  be  led  to  the  next  market  town,  or  other  place  most 
convenient,  tied  to  the  end  of  a  cart,  and  beaten  with 
whips  till  his  body  be  bloody  by  reason  of  such  whipping, 
and  made  to  return  the  most  straight  way  to  his  native 
place  —  • " ;  towns  neglecting  their  duty  were  fined  3s.  4c?. 
for  an  impotent  beggar,  and  6s.  Sd.  for  a  sturdy  rogue.  It 
is  this  statute,  also,  which  contains  the  famous  clause  that 
scholars  of  the  Universities  of  Oxford  and  Cambridge  that 
go  about  begging,  not  being  authorised  under  the  seal  of 
the  said  universities,  shall  be  punished  and  ordered  in  the 
same  way  as  strong  beggars.  Fortune  tellers,  also,  were 
subject  to  a  curious  gradation  of  punishments,  the  penal- 
ties being :  whipping,  the  pillory,  first  ear  and  second  ear. 
In  1535  the  mayors  and  bailiffs  were  to  find  employment 
for  the  valiant  rogues  and  sturdy  vagabonds ;  funds  were 
to  be  provided  from  voluntary  church  collections  for  this 
purpose,  and  for  the  relief  of  the  impotent,  but  no  one  was 
to  give  except  through  the  church,  under  a  penalty  of  ten 
times  the  amount. 

1  43  Eliz.  c.  2.  2  Cf.  Eden,  11,  c.  5. 

3  22  Hen.  VIII.,  c.  12.    See  Nicholls,  Vol.  I.,  p.  115. 


374  PRINCIPLES  OF  POLITICAL   ECONOMY. 

The  dissolution  of  the  smaller  monasteries  in  1536,  and 
of  the  larger  in  1539,  increased  the  number  of  beggars,  and 
the  variety  and  intensity  of  their  punishments.  In  the 
reign  of  Edward  VI.  (1547),  the  policy  of  suppression 
reached  its  climax.  Loitering,  idle  wanderers,  who  refused 
to  work,  were  to  be  branded  with  the  letter  V,  and  ad- 
judged slaves  for  two  years,  to  any  one  who  cared  to  de- 
mand them ;  if  they  ran  away  within  the  time,  they  were 
branded  on  the  cheek  with  the  letter  S,  and  adjudged 
slaves  for  life ;  for  another  attempt  at  escape,  the  penalty 
was  the  death  of  a  felon.  The  children  of  wanderers, 
between  the  ages  of  5  and  14,  might  be  taken  from  their 
mothers,  or  other  keepers,  whether  willing  or  not,  and  con- 
verted into  slaves  until  the  ages  of  20  and  24,  for  female  and 
male,  respectively.  It  was  found,  however,  two  years  later 
(1549),  that  these  good  and  wholesome  laws  of  the  realm 
were  not  put  in  practice,  because  of  the  severity  of  some 
of  them,  and  the  softer  measures  of  previous  times  were 
restored.  This,  as  before,  involved  expenditure,  and  it  is 
curious  to  trace  the  gradual  struggle  to  the  front,  of  com- 
pulsory assessment.  If  a  person,  able  and  willing  to  give, 
obstinately  and  frowardly  refused,  the  parson  and  church- 
wardens were  gently  to  exhort  him,  and,  if  he  would  not 
be  so  persuaded,  then  the  bishop  was  to  send  for  him  to 
induce  and  persuade  him  by  charitable  means.  But,  al- 
though these  acts  were  repeated  during  Mary's  reign,  and 
the  first  years  of  Elizabeth's,  it  appears  that  the  gentle 
askings  of  the  collectors,  and  the  charitable  ways  and 
means  of  the  bishops,  failed  to  induce  the  people  to  con- 
tribute according  to  their  means,  so  that  (1562),  if,  after 
the  persuasion  of  churchwardens  and  bishop,  any  person, 
of  his  froward  or  wilful  mind,  refused  to  give  weekly  to 
the  relief  of  the  poor,  the  bishop  was  to  bind  him  under  a 
penalty  of  ,£10  to  appear  at  the  next  session,  and  here  the 
justices  were  again  to  charitably  and  gently  persuade  and 
move  the  said  obstinate  person,  to  extend  his  charity 
towards  the  relief  of  the  poor ;  but  if  he  would  not,  then 


DISTRIBUTION.  375 

they  were  to  assess,  tax,  and  limit  upon  the  said  obstinate 
person,  what  he  was  to  pay,  and  cast  him  into  prison  until 
he  paid  it,  arrears  and  all.  Ten  years  later  (1572),  there 
is  another  relapse  into  savagedom,  and  a  beggar  was,  for 
the  first  offence,  to  be  grievously  whipped,  and  burned 
through  the  gristle  of  his  right  ear,  with  an  iron  one  inch 
in  circumference ;  for  the  second,  to  be  adjudged  a  felon ; 
and  for  the  third,  to  suffer  death. 

At  last  it  was  recognised  that  "  severity  of  punishment 
loses  its  terrors  in  the  presence  of  actual  want,  and  that 
the  first  step  towards  putting  down  vagabondage  and 
crime,  was  to  provide  against  such  an  extremity  of  want 
as  would  leave  no  alternative  between  starvation  and  a 
breach  of  the  law." 1 

We  thus  arrive  at  the  second  period  in  which  the  great 
act  of  Elizabeth  (1601) 2  is  dominant.  For  a  period  of  a 
century  and  a  half  this  act  was  fairly  administered,  and, 
on  the  whole,  worked  well.  The  principles  involved  are 
(a)  relief  of  the  lame,  impotent,  old,  and  blind,  and  other 
poor  people  not  being  able  to  work  ;  (6)  setting  to  work 
the  children  of  those  not  able  to  keep  them,  and  also  those 
who  have  no  ordinary  or  daily  trade  of  life  to  get  their 
living  by.  The  funds  were  provided  by  compulsory  tax- 
ation of  every  inhabitant,  "parson,  vicar,  and  other";  but 
the  mutual  responsibility  of  parents  and  children,  and 
grandparents  and  grandchildren,  was  admitted.  Every 
parish  was  liable  for  its  own  poor. 

The  principle  of  local  administration  and  assessment  led 
at  once  to  difficulties.  The  poor  flocked  to  the  parishes 
where  they  received  the  best  treatment,  and  this  abuse 
was  met  by  the  laws  of  settlement.  The  history  of  these 
laws  is  interesting,  both  for  the  development  of  principles 
and  the  evasion  of  provisions,  but  is  too  intricate  to  be  here 

1  Nicholls,  Vol.  I.,  p.  193. 

2  The  act  is  reprinted  by  Eden,  Vol.  VIII.,  Appendix,  and  a  full 
abstract  is  given  by  Nicholls,  Vol.  I.,  p.  194.    See  for  summary  of  devel- 
opment, p.  197. 


376  PRINCIPLES  OF  POLITICAL  ECONOMY. 

followed  out  in  detail.1  The  Act  of  1691,  however,  is  of  im- 
portance, as  it  introduced,  apparently  by  accident,  a  princi- 
ple which  led  to  most  of  the  evils  of  the  third  period.  The 
object  was  to  prevent  fraudulent  overseers  from  giving  relief 
as  they  thought  fit,  and  hence  extending  the  rates.  Accord- 
ingly, a  register  was  to  be  produced  at  the  vestry  meetings, 
and  no  one  was  to  receive  collection  (i.e.,  relief)  except  on 
the  authority  of  one  justice,  or  by  order  of  the  bench  of  jus- 
tices, at  quarter  sessions.  In  about  thirty  years  an  act  of 
George  I.  (1713)  shows  that  a  practice  had  sprung  up  of 
justices  ordering  relief  to  any  applicants  on  frivolous  pre- 
tences. Accordingly,  it  was  enacted  that  parishes  might 
singly,  or  in  unions,  provide  work-houses  for  the  reception 
of  the  poor,  and  that  those  who  refused  this  test  should  not 
be  entitled  to  parochial  relief.  The  immediate  effect  was 
good,  and  the  expenditure  decreased,2  but  gradually  the 
same  abuses  were  revived.3 

In  the  third  period  the  relief  of  poverty,  as  well  as  posi- 
tive destitution,  from  whatever  cause  it  arose,  became  the 
ruling  principle.  The  work-house  test  was  abandoned, 
the  work-houses  becoming  simply  poor-houses  for  the  aged, 
sick,  and  impotent.  Gilbert's  Act4  (1782)  may  be  taken 
as  containing  the  germs  of  the  new  system.  The  act 
ordained5  that  the  guardians  of  the  poor  were  to  pro- 
vide for  any  who  were  able  and  willing  to  work,  employ- 
ment "  suited  to  their  capacity,"  and  "  near  the  place  of 
their  residence,"  and  to  cause  them  to  be  properly  main- 
tained and  provided  for  until  such  employment  was  pro- 
cured, and  to  receive  the  money  earned  by  such  work  and 
to  apply  it  to  such  maintenance  as  far  as  it  would  go,  and 
make  up  the  deficiency  (if  any),  whilst  if  there  happened 
to  be  an  excess,  it  was  to  be  given  to  the  person  who  had 
earned  it. 

i  Cf.  Adam  Smith,  Bk.  I.,  Ch.  X.  «  Eden,  Vol.  I.,  p.  285. 

8  Cf.  Proposal  for  making  an  Effectual  Provision  for  the  Poor,  by 
Henry  Fielding  (1753),  especially  the  Introduction. 

*  Nicholls,  Vol.  II.,  pp.  137,  138.  &  Report,  p.  9. 


DISTRIBUTION.  377 

The  same  principle  was  carried  out  in  the  famous  Berk- 
shire bread-scale  (1795),  locally  known  as  the  "  Speen- 
hamland  Act  of  Parliament,"  which  was  soon  extensively 
adopted  in  other  countries.  According  to  this  plan  wages 
were  to  be  regulated  according  to  the  price  of  bread,  and 
the  size  of  the  families  of  the  labourers.1 

The  evils  that  ensued  are  graphically  described  in  the 
Report  of  1834.  It  is  stated  that  in  most  of  the  districts 
examined,  the  funds  which  the  43d  Elizabeth  (1601)  di- 
rected to  be  employed  in  setting  to  work  children  and 
persons  capable  of  labour,  but  using  no  daily  trade,  were 
applied  to  purposes  opposed  to  the  letter,  and  still  more 
to  the  spirit  of  that  law,  and  destructive  to  the  morals  of 
the  most  numerous  class  and  to  the  welfare  of  all. 

The  great  abuse  was  the  out-door  relief  afforded  to  the 
able-bodied  on  their  own  account,  or  on  that  of  their 
families.2  Sometimes  this  was  given  in  kind:  in  this 
case  it  rarely  took  the  form  of  food,  less  rarely  of  fuel, 
still  less  rarely  of  clothes,  especially  shoes,  but  its  most 
usual  form  was  providing  house-room  either  totally  or 
partially  rent  free.  Out-door  relief  in  the  form  of  money 
was  still  more  prevalent,  and  was  effected  by  five  different 
expedients.  There  was  first  relief  without  labour ;  thus 
able-bodied  young  men  received  in  some  places  3s.  a  week 
which  they  supplemented  by  depredations  of  various  sorts. 
A  more  usual  plan,  however,  was  to  give  a  somewhat 
larger  sum  and  to  make  the  applicants  sit  in  a  certain 
spot  and  do  nothing,  or  attend  a  roll-call  several  times  a 

1  A  sentence  is  often  quoted  from  Pitt's  speech  (12th  Feb.,  1796),  in 
which  he  speaks  of  a  labourer  who  has  enriched  his  country  with  a  num- 
ber of  children  having  a  claim  upon  its  assistance  for  its  support.    But 
the  sample  is  a  very  unfair  specimen  of  the  argument.     He  goes  ou  to 
say:  "All  this,  however,  is  not  enough  if  they  did  not  engraft  upon  it 
resolutions  to  discourage  relief  where  it  was  not  wanted."     On  the  whole, 
the  speech  is  founded  on  the  teaching  of  Adam  Smith  (especially  on  Set- 
tlement and  Education).     See  the  Report,  Eden,  Vol.  III.,  Appendix, 
p.  308. 

2  Report,  p.  12. 


378  PRINCIPLES  OF  POLITICAL   ECONOMY. 

day,  or  some  other  contrivance  was  adopted  which  was 
supposed  to  make  idleness  neither  amusing  nor  profitable. 
Next  there  was  the  allowance  system.  By  this  plan,  those 
in  receipt  of  the  average  wages  of  the  district  received  in 
addition  from  the  parish  so  much  on  account  of  their 
children,  or  according  to  the  price  of  bread.  The  idea 
was  to  raise  wages  to  some  supposed  fair  standard  of 
comfort.  By  the  roundsman  system  the  occupiers  of 
property  were  to  employ  -applicants  for  relief  at  wages 
fixed  by  the  parish,  the  employer  being  paid  out  of  the 
poor  rate  all  he  advanced  beyond  a  certain  sum.  In  one 
case  recorded,  a  labourer  received  2d.  a  day  from  his 
employer,  and  the  rest  from  the  parish.  Sometimes  the 
parish  attempted  directly  the  employment  of  labour.  This 
was  the  principle  of  the  act  of  Elizabeth,  by  which  relief 
was  to  be  given  to  none  but  the  impotent  except  for  work. 
But  this  mode  of  relief  was  practically  the  most  unusual,1 
and  when  adopted  was  open  to  grave  abuses.  In  some 
parishes  it  was  found  that  the  paupers  had  the  notion  that 
it  was  their  right  to  be  paid  at  a  higher  rate  than  inde- 
pendent labourers,  and  the  right  was  recognised.  In  one 
place,  whilst  by  hard  work  the  independent  labourer  could 
earn  12«.  a  week,  the  pauper,  for  nominal  work,  obtained 
16s.2 

Lastly,  there  was  the  labour  rate  system,  by  which 
people  were  bound  to  employ  and  pay  so  many  labourers, 
according  to  their  property,  or  some  other  scale  of  assess- 
ment, whether  they  required  the  labour  or  not.3  The  gen- 
eral conclusion  of  the  report  is,  that  "  Out-door  relief  to 
the  able-bodied  contains  in  itself  the  elements  of  an  almost 
indefinite  extension,  of  an  extension,  in  short,  which  may 
ultimately  absorb  the  whole  fund  out  of  which  it  arises. 
The  shame  of  application  is  soon  blunted  and  destroyed ; 
there  is  no  test  of  real  necessity,  and  there  is  scope  for 

1  Report,  p.  23.  2  Report,  p.  25. 

8  Out-door  relief  to  the  impotent,  it  was  found,  was  subject  to  much 
less  abuse,  and  may  be  passed  over. 


DISTRIBUTION.  379 

endless  robbery/'  One  case  is  quoted  which  has  become  a 
classical  example.  In  Charlsbury,  the  expense  of  main- 
taining the  poor  became  so  great,  that  the  land-owners 
gave  up  their  rents,  the  farmers  their  tenancies,  and  the 
clergymen  his  glebe  and  tithes.1  The  whole  of  fhe  value 
of  the  land  was  swallowed  up,  and  the  rector  advised 
that  the  land  should  be  divided  amongst  the  able-bodied 
paupers,  and  hoped  that  in  two  years,  with  the  assistance 
of  rates  in  aid  from  other  parishes,  the  whole  of  the  poor 
would  be  able  and  willing  to  support  themselves,  the  aged 
and  impotent  excepted.  In  many  other  instances  the  poor 
rates  had  absorbed  more  than  half  of  the  rental,  and  were 
increasing  rapidly. 

But  the  effects  of  the  system,  even  whilst  funds  were 
forthcoming,  were  the  reverse  of  beneficial.  Take  first 
the  case  of  the  employers  of  labour.2  In  agriculture,  the 
farmers  felt  the  evil  at  once  and  directly ;  for,  as  the 
labourer  felt  that  his  wages  depended  not  on  the  value 
of  his  labour,  but  on  the  number  of  his  children,  he  had 
no  incentive  to  industry,  and  the  tendency  was  for  skill, 
honest)-,  diligence,  and  other  good  qualities  to  wear  out, 
and  their  places  to  be  taken  by  the  opposite  vices.  The 
report  states  that  the  labourers  became,  not  merely  unfit 
for  services,  but  positively  hostile  to  the  farmers.  There 
was  never  a  better  example  of  the  truth  that  cheap  labour 
is  dear  labour.  The  employer  lost  far  more  in  efficiency 
than  he  gained  by  the  rates  in  aid  of  wages. 

In  the  manufacturing  industries  the  effects  were  differ- 
ent. The  use  of  machinery  made  it  possible  to  ensure  the 
requisite  efficiency  by  supervision,  especially,  as  large 
numbers  of  children  were  employed,  and  payment  was 
often  by  piece-work.  In  this  case,  then,  a  manufactory 
worked  by  paupers  could  turn  out  goods  cheaper  than  its 
rivals,  and  the  result  was  to  injure  independent  employers; 

1  Report,  p.  40.     The  rates  had  risen,  with  a  stationary  population, 
from  £10  in  1801  to  £367  in  1832. 

2  Report,  pp.  42,  43. 


380  PRINCIPLES   OF   POLITICAL   ECONOMY. 

and  it  is  said  that  whole  branches  of  manufactures  fol- 
lowed the  course  not  of  commerce  but  of  pauperism.1 

But  the  severest  sufferers  were  those  for  whose  benefit 
the  system  was  supposed  to  be  introduced  and  perpetuated, 
namely,  "the  labourers  and  their  families.2  In  the  first 
place,  those  who  were  not  relieved  —  the  independent  la- 
bourers —  suffered  by  want  of  employment  and  reduction 
of  wages.  The  paupers  had  the  first  claim,  and  if  a  man 
had  made  any  savings  he  was  often  unable  to  obtain  work. 
This,  then,  was  the  greatest  encouragement  to  reckless 
extravagance  and  improvidence.  Secondly,  those  who 
were  relieved  soon  became  hopelessly  degraded.  Although 
the  independent  labourers  earned  less,  their  mode  of  life 
was  in  every -case  "strikingly  distinguishable  "  from  that 
of  the  pauper.  The  degradation  that  actually  followed 
from  the  out-door  relief  system  was  intensified  and  ex- 
tended by  the  bastardy  laws  which,  in  the  language  of  the 
report,  were  "  pre-eminently  unwise."  The  ostensible  ob- 
jects were  to  diminish  the  crime,  and  when  it  occurred,  to 
indemnify  the  parish  ;  but,  both  in  their  provisions  and 
their  administration,  the  laws  were  so  curiously  perverse, 
that  the  result  was  a  high  premium  on  unchastity,  perjury, 
and  extortion,  and  to  quadruple  the  expense  to  the  parish 
directly,  and  indirectly  to  augment  it  still  more.3 

As  the  immediate  consequence  of  this  Report,  the  Poor 
Law  Amendment  Act  was  passed  (1834).4  This  act 
dominates  the  fourth  period,  which  is  now  apparently 
threatened  with  a  speedy  termination.  "  The  act  is 
avowedly  based  on  the  principle,  that  no  one  should  be 
suffered  to  perish,  through  the  want  of  what  is  necessary 
for  sustaining  life;  but,  at  the  same  time,  that  if  he  be  sup- 
ported at  the  expense  of  the  public,  he  must  be  content  to 
receive  such  support  on  the  terms  deemed  most  consistent 
with  the  public  welfare."  6  The  objects  aimed  at  may  be 

1  Report,  p.  49.  2  Report,  pp.  54,  65.  »  Report,  pp.  99-107. 

4  For  summary,  see  Nicholls,  Vol.  II.,  p.  289. 
s  Nicholls,  Vol.  II.,  p.  286. 


DISTRIBUTION.  381 

most  appropriately  described  in  the  language  of  an  ortho- 
dox economist,1  who  was  one  of  the  principal  framers  of 
the  measure  :  "  First,  to  raise  the  labouring  classes,  that 
is  to  say,  the  bulk  of  the  community  from  the  idleness, 
improvidence,  and  degradation  into  which  the  maladminis- 
tration of  the  laws  for  their  relief  has  thrown  them  ;  and 
secondly,  to  immediately  arrest  the  progress,  and  ultimately 
to  diminish  the  amount  of  the  pressure  on  the  owners  of 
lands  and  houses."  Accordingly,  the  leading  principles 
of  the  new  law  was  to  make  the  position  of  the  pauper 
less  eligible  than  that  of  the  independent  labourer.  The 
best  proof  that  these  objects  have  been  fairly  realised  is  to 
be  found  in  the  fact,  that  the  evils  which  the  act  was 
intended  to  remedy  have  been  forgotten,  and  that  an 
increase  of  expenditure  on  all  kinds  of  out-door  relief  is 
now  being  strongly  advocated.  This  also  is  my  apology 
for  the  length  of  this  section. 

§  8.  Combinations.  Adam  Smith,  in  a  well-known  pas- 
sage, has  observed  that,  "masters  are  always  and  every- 
where in  a  sort  of  tacit  but  constant  and  uniform 
combination  not  to  raise  the  wages  of  labour  above  their 
actual  rate."2  At  the  time  he  wrote,  open  combinations 
of  masters  were  permitted,  but  combinations  of  workmen 
were  prohibited,  and  the  penalties  were  soon  after  (1810) 
to  be  made  more  stringent.  The  prevention  by  law  of 
labour  combinations  is  of  early  origin,  and  Brentano's 
hypothesis,  that  combination  is  always  the  refuge  of  the 
weak  against  oppression,  just  as  competition  is  the  delight 
of  the  strong,  is  natural  and  suggestive,  and  receives  from 
history  abundant  illustration,  though  not  enough  to  estab- 
lish an  inductive  proof.  The  outbreaks  of  slaves  in 
antiquity,  especially  the  great  servile  wars  in  the  Roman 
provinces  and  the  peasant  revolts  in  the  middle  ages,  as, 
for  example,  the  rebellion  of  Wat  Tyler  in  England  (1381), 
and  the  Jacquerie  in  France  (1358)  are  instances  on  a 

1  Senior,  who  next  to  Malthas  is  the  best  abused  of  the  old  school. 
2Bk.  I.,  Ch.  VIII. 


382  PRINCIPLES   OF   POLITICAL  ECONOMY. 

large  scale  of  combinations  of  the  weak  against  the  strong. 
But  the  pregnant  criticism  of  Rogers  should  be  remem- 
bered :  "  The  forces  of  society  always  make  easy  work 
of  the  outbreak,  which  despair  sometimes  instigates ;  the 
Jacquerie  in  France,  the  Peasants'  War  in  Germany,  were 
desperate  efforts,  ferocious  reprisals  but  futile  struggles."  1 
Labour  combinations,  however,  which  take  the  form  of 
armies,  are  exceptional  and  can  only  arise  under  excep- 
tional conditions ;  they  may  serve  to  illustrate  a  principle  ; 
but  the  light  is  too  strong  for  application  to  the  ordinary 
relation  of  employer  and  employed.  But,  in  the  strictest 
sense  of  the  term,  combinations  of  labourers  were  soon 
resorted  to,  and  at  once  provoked  the  hostility  of  the 
legislature  and  its  counsellors,  the  masters.  Thus,  in 
the  reign  of  Edward  VI.  an  act  (1548)  2  recites,  that  la- 
bourers and  artificers  have  made  confederacies  and  sworn 
mutual  oaths,  not  only  not  to  meddle  with  one  another's 
work,  but  also  to  appoint  how  much  work  they  should  do 
in  a  day,  and  what  hours  and  times  they  shall  work ;  and 
accordingly,  such  combinations  are  declared  illegal,  and 
penalties  similar  to  those  applied  to  sturdy  rogues  are 
imposed,  ascending  from  a  fine,  by  way  of  the  pillory,  to 
the  loss  of  both  ears  and  infamy,  "  his  dispositions  and 
oath  not  to  be  credited  at  all  times  afterwards."  Down 
to  1824  combinations 3  were  treated  in  the  same  spirit ; 
it  was  not  till  the  Trades  Union  Act  of  1871  that  the 
principles  of  the  old  legislation  were  abandoned,  and  some 
vestiges  of  their  former  operation  remained  till  the  Em- 
ployers and  Workmen  Act  of  1875. 

As  at  present  constituted,  Trade  Unions  are  "  voluntary 
associations  of  workmen  for  mutual  assistance  and  protec- 
tion, and  securing  generally  the  most  favourable  conditions 

1  Six  Centuries,  p.  271.  See,  however,  Cunningham,  Vol.  I.,  p.  359, 
note,  on  the  difference  between  the  cases. 

'Nicholls,  Vol.  I.,  p.  137. 

8  The  History  of  the  Combination  Law  is  well  treated  by  G.  Howell : 
Conflicts  of  Labour  and  Capital,  Ch.  II. 


DISTRIBUTION.  383 

of  labour.  This  is  their  primary  and  fundamental  object, 
and  includes  all  efforts  to  raise  wages  or  prevent  a  reduc- 
tion in  wages ;  to  diminish  the  hours  of  labour  or  resist 
attempts  to  increase  the  working  hours ;  and  to  regulate 
all  matters  pertaining  to  methods  of  employment  or  dis- 
charge and  modes  of  working.  The  sphere  of  their  action 
extends  to  almost  every  detail  connected  with  the  labour 
of  the  workman  and  the  well-being  of  his  every-day  life." 1 
In  the  language  adopted  in  the  present  work,  the  object 
of  trade-unions  is  to  diminish  the  quantity  of  labour,  to 
increase  the  real  reward,  and  to  strengthen  the  power  of 
the  men  compared  with  that  of  the  masters  in  making 
bargains.  With  regard  to  each  of  these  objects,  which,  as 
already  shown,  are  always  intimately  connected,  the  in- 
dividual labourer  (in  the  ordinary  meaning  of  the  term), 
is  as  a  rule  at  a  disadvantage  compared  with  his  em- 
ployer. The  principal  reason  was  well  stated  by  Adam 
Smith :  "  A  landlord,  a  farmer,  a  master  manufacturer  or 
merchant,  though  they  did  not  employ  a  single  workman, 
could  generally  live  a  year  or  two  upon  the  stocks  which 
they  have  already  acquired.  Many  workmen  could  not 
subsist  a  week,  few  could  subsist  a  month,  and  scarce  any 
a  year,  without  employment.  In  the  long  run  the  work- 
man may  be  as  necessary  to  his  master  as  his  master  is  to 
him,  but  the  necessity  is  not  so  immediate."  In  more 
modern  phraseology  labour,  considered  as  a  commodity,  is 
perishable.  "  Labour  will  not  keep ;  .  .  .  to-day's  labour 
cannot  be  sold  after  to-day,  for  to-morrow  it  will  have 
ceased  to  exist;  .  .  .  extreme  poverty  virtually  disables 
the  labouring  poor  from  bargaining;  ...  it  forbids  them 
standing  out,  as  all  other  sellers  are  accustomed  to  do,  for 
their  price."  2 

An  adequate  examination  of  the  effect  of  trade-unions 
on  the  price  of  labour,  considered  as  a  commodity,  would 

1  Howell,  op.  cit.,  Ch.  III.     The  Ol>j<ct*.  Aims,  Constitution,  and  Gov- 
ernment of  Trade  Unions. 

2  Thornton,  on  Labour,  Bk.  II.,  Ch.  I.     Labour  and  Capital  in  Debate. 


384  PRINCIPLES  OF  POLITICAL  ECONOMY. 

presuppose  not  only  the  theory  of  profits  but  the  theory 
of  value.1  At  the  present  stage,  however,  it  may  be  useful 
to  point  out  the  danger,  in  this  respect,  of  falling  into  the 
simple  fallacy,  — post  hoc  ergo  propter  hoc.  In  the  first 
place,  coincidently  with  the  growth  of  trade-unions, 
there  have  been  many  causes  at  work  of  great  importance 
that  have  tended  to  raise  money-wages,  especially  the 
wages  of  skilled  labour  in  which  the  unions  are  strongest. 
There  have  been,  for  example,  immense  improvements  in 
mechanical  appliances,  a  very  great  extension  of  foreign 
markets,  and  a  rapid  increase  in  the  amount  of  capital 
naturally  competing  for  labour.  It  would  be  just  as  rea- 
sonable to  say,  as  was  once  very  commonly  and  is  still 
sometimes  said,  that  the  rise  in  the  money-wages  of  labour 
was  due  entirely  to  the  adoption  of  free  trade.  The  truth 
is  that  trade-unionism  is,  at  the  best,  only  one  element 
affecting  wages.  Secondly:  there  has  been  a  great  rise 
in  the  wages  of  various  classes  of  labour  in  which  unions 
do  not  exist  at  all,  or  have  only  a  very  limited  power,  as, 
for  example,  in  the  wages  of  domestic  servants  and  agri- 
cultural labourers,  the  two  most  numerous  classes  of  labour 
in  England  at  the  present  time.  Thirdly :  if  the  question 
is  to  be  considered  in  its  purely  monetary  aspect,  we  must 
set  the  cost  of  strikes  against  the  rise  of  wages  obtained 
in  any  particular  industry.  This  point  was  forcibly  brought 
out  by  Thornton.  In  a  strike,  on  account  of  wages,  the 
amount  in  dispute  is  often  not  more  than  5  per  cent, 
and  seldom  more  than  2  per  cent,  of  the  rate  actually 
current.2  Now  it  follows  at  once,  from  the  rules  of  simple 
arithmetic,  that  if  a  strike  aims  at  10  per  cent  and  lasts 
only  6  weeks  the  men  will  lose  more,  in  those  6 
weeks,  than  they  will  recover  by  the  rise  during  a  twelve- 
month.3 If  the  strike  lasted  12  weeks  it  would  take 

1  Of.  Marshall's  Economics  of  Industry,  Bk.  VI.,  Ch.  XIII. 

2  On  Labour,  p.  315  seq.    Witness  the  great  cotton  strike  which  ended 
March  24,  1892,  after  20  weeks. 

8  Thus  if  wages  were  £1  a  week,  the  labourer  would  lose  £6  ;  and  if  the 


DISTRIBUTION.  385 

2  years,  and  if  18  weeks  3  years,  and  so  on,  to  recoup 
the  loss.  Now,  as  a  matter  of  fact,  strikes  have  occurred 
which  have  lasted  38  weeks,  29  weeks,  26  weeks,  and  so 
on,  and  which,  in  the  end,  have  not  even  been  success- 
ful. Four  such  strikes  are  described  by  Thornton,  and 
if  they  had  been  successful  (and  they  were  failures),  it 
would  have  taken  the  men  from  5  to  8  years'  continuous 
employment  at  the  extra  rate  of  10  per  cent  to  have 
recovered  the  loss  incurred.  Of  course  these  are  extreme 
examples  but  they  are  also  real;  and  in  one  case  (at 
Preston),  15,000  operatives  were  engaged  and  in  another, 
the  London  builders,  10,000.  Nor  is  the  direct  loss  of 
wages  the  only  loss.  There  is  the  loss  of  capital  directly 
involved,  and  the  further  loss  in  the  contraction  of  en- 
terprise, —  for  it  is  clear  that,  with  a  fear  of  strikes  before 
their  eyes,  capitalists  will  not  be  so  ready  to  increase  their 
undertakings.  And  this  indirect  loss  to  capital  would 
also  in  the  end,  and  not  very  remotely,  affect  labour. 

On  the  other  hand,  it  must  be  remembered  that  the  fear 
of  a  strike  may  induce  employers  to  offer  higher  wages 
than  they  would  do  otherwise,  and  thus,  on  the  whole, 
wages  may  rise  somewhat  at  the  expense  of  profits,  though 
here  again  the  direct  effects  on  capital  must  be  taken  into 
consideration. 

But  the  question  is  not  simply  a  monetary  question  and 
a  matter  of  balancing  accounts ;  nor  is  the  only  object  of 
trade-unions  to  operate  on  wages  by  strikes  and  rumours 
of  strikes.  They  adopt,  to  a  considerable  extent,  the  prin- 
ciples of  a  mutual  assurance  society ; 1  they  give  allow- 
ances to  members  out  of  work,  and  to  their  wives  and 
families ;  they  provide  funds  for  sickness,  accidents,  old 
age,  and  burial ;  they  extend  their  sympathy,  often 

strike  was  successful  in  raising  wages  to  22s.  a  week,  the  extra  2s.  would 
only  give  £5  4s.  in  a  year. 

1  Cf.  Howell,  p.  133  sqq.  Five  societies,  between  1867  and  1886,  spent 
£2,121,692  in  support  of  those  out  of  employment,  quite  irrespectively  of 
other  benefits,  such  as  sick,  funeral,  superannuation,  accidents,  etc. 


386  PRINCIPLES  OF   POLITICAL   ECONOMY. 

weighted  with  money,  to  kindred  associations ;  they  pay 
attention  to  the  acts  and  reports  of  Parliament  as  affect- 
ing labour;  and  in  many  respects  they  carry  on  mutatis 
mutandis  the  work  of  the  early  guilds  with  the  early  guild 
spirit. 

In  one  respect,  however,  in  the  opinion  of  the  present 
writer,  they  are  superior  to  their  prototypes.  "  The  first 
essential  principle  of  the  existence  of  a  trades-union  is,"  in 
the  words  of  Mr.  Howell,  "  that  it  shall  be  purely  volun- 
tary ;  upon  no  other  basis  could  it  legally  or  possibly  exist. 
A  man  must  have  perfect  liberty  either  to  join  or  refrain 
from  joining  such  a  society,  according  to  his  taste  or  incli- 
nation." 1  So  long  as  these  principles  are  adhered  to, 
trades-unionism  is,  in  spite  of  its  outward  form,  an  agency 
by  which  the  liberty  of  individuals  is  extended.  Conti- 
nental statesmen  have  rightly  acknowledged  that  the  Eng- 
lish trades-unions  are  essentially  opposed  to  socialism,  and 
the  words  and  deeds  of  the  leaders  of  the  unions  are  suffi- 
cient evidence.  Recently,  however,  two  influences  have 
begun  to  operate,  which,  if  allowed  to  become  dominant, 
will  destroy  the  trades-unions  as  they  formerly  destroyed 
the  guilds.  The  first  is,  the  attempt  to  make  membership 
of  the  union  a  necessary  qualification  for  obtaining  em- 
ployment in  the  corresponding  industry,  as  shown,  for 
example,  in  the  refusal  to  work  with  non-unionists.  So 
far,  the  unions  tend  to  injure  labour  as  a  whole,  —  directly, 
by  restraints  imposed  on  the  labourers,  and  indirectly,  by 
restraints  imposed  on  the  employers.  If  such  a  policy 
were  completely  carried  out,  industry  would  naturally  flee 
as  it  did  from  the  restrictions  of  guilds  and  corporations. 
Secondly,  there  is  an  attempt  to  give  to  particular  forms  of 
labour  a  monopoly  value,  and  to  raise  wages  at  the  expense 
of  the  consumer.  Here,  again,  the  analogy  of  the  old 
"fraternities  in  evil"  is  instructive.  In  some  cases,  in- 
deed, the  attempt  is  made  to  better  this  instruction,  and  to 
introduce  the  principle  of  the  right  of  the  strongest,  re- 

1  p.  120. 


DISTRIBUTION.  387 

gardless  of  contracts  or  security.  As  already  stated,  it  is 
in  accordance  with  the  system  of  natural  liberty,  to  use 
labour  combinations  on  a  voluntary  basis  to  secure  the  best 
terms  that  the  state  of  the  market  will  permit,  both  as 
regards  the  quantity  of  labour  and  the  real  reward ;  but  it 
is  contrary  to  that  system,  and  to  the  real  interests  of  the 
labourers,  to  try  to  convert  a  trade-union  into  a  labour 
"  syndicate "  which  is  to  model  its  actions  on  the  worst 
methods  of  the  stock-exchange.  The  labour  in  question 
may  appear  to  be  absolutely  necessary  to  the  welfare,  and 
even  to  the  existence,  of  the  whole  community,  but  syndi- 
cates in  various  "  necessaries  "  much  more  easy  of  manipu- 
lation have  failed  in  the  long  run,  and  labour  is  certainly 
not  a  good  subject  for  a  speculative  operation ;  for  wages 
can  only  be  earned  "  in  the  long  run."  They  cannot,  like 
the  profits  of  the  stock-jobber,  be  crowded  into  one  fortu- 
nate day  or  week.  The  ideal  of  a  trade-union  ought  to  be 
to  make  freedom  of  contract  between  labour  and  capital  a 
reality ;  and  the  more  this  ideal  is  realised,  and  the  more 
knowledge,  which  is  the  essence  of  freedom,  is  obtained  on 
both  sides  as  to  the  real  meaning  of  the  contract,  so  much 
the  less  need  there  will  be  of  strikes  and  other  forms  of 
conflict. 

§  9.  Conclusion.  In  bringing  this  long  chapter  to  a 
close,  I  would  repeat,  that  when  we  are  dealing  with 
actual  laws  and  customs,  it  is  impossible  to  bring  out  their 
objects  and  effects  with  the  accurate  precision  of  tenden- 
cies under  hypothetical  conditions.  It  is  also  necessary, 
at  the  risk  of  seeming  tedious  and  pedantic,  to  give  a  cer- 
tain amount  of  detail.  History  without  detail  is  a  mere 
expression  of  individual  opinion, 


CHAPTER   XIII. 

PROFITS. 

§  1.  Profits  as  Dependent  on  the  Feelings  of  the  Capi- 
talist. Profits,  like  wages,  may  be  regarded  from  two 
points  of  view,  which,  adopting  the  same  language  as  be- 
fore, may  be  called  subjective  and  objective,  respectively. 
Considered  on  the  subjective  side,  profits  may  be  analysed 
into  three  elements,  or,  in  other  words,  profits  may  be  said 
to  constitute  the  reward  for  three  species  of  disutility, 
suffered  or  endured  by  the  capitalist.  Adopting  the 
phraseology 1  which  Mill  has  made  classical,  gross  profits 
must  afford  a  sufficient  equivalent  for  abstinence,  indem- 
nity for  risk,  and  remuneration  for  the  labour  and  skill 
required  for  superintendence.  Regarded  in  this  way, 
profit  consists  of  a  three-fold  reward  for  three  kinds  of  dis- 
agreeable feelings,  or,  more  technically,  of  three  utilities 
obtained  for  three  disutilities.  If  the  rate  of  profits  were 
just  sufficient  to  call  forth  this  effort  and  abstinence, 
then  prima  facie,  the  economic  harmony  of  Bastiat  and  his 
followers  would  seem  to  be  established.  Unfortunately, 
however,  profits  must  also  be  considered  from  the  objective 
standpoint;  and  here,  the  analysis  into  three  elements, 
gives  very  different  results. 

§  2.  Profits  as  Dependent  on  the  Cost  of  Labour.2  The 
share  that  falls  to  the  capitalist  of  the  joint  product  of 
labour  and  capital,  is  obviously  dependent  on  the  cost  of 
labour.  But,  again,  to  adopt  Mill's  language,  the  cost 

1  Mill,  Bk.  II.,  Cb.  IV.,  §  1.     The  description  is  derived  from  Senior. 

2  Mill,  Bk.  II.,  Ch.  XV.,  §  7. 

388 


DISTRIBUTION.  389 

of  labour  is  a  function  of  three  variables,  and  these  vari- 
ables are :  the  efficiency  of  labour,  the  real  reward  of  the 
labourer,  and  the  greater  or  less  cost,  at  which  the  articles 
composing  that  real  reward,  can  be  produced  or  procured. 
It  follows,  at  once,  from  this  analysis,  that  profits  may  rise 
if  labour  becomes  more  efficient,  or  if  real  wages  fall,  or  if 
the  cost  of  the  real  wages  is  diminished,  that  is  to  say, 
profits  may  rise  independently  of  the  abstinence,  the  risk, 
or  the  toil,  of  the  capitalist. 

Accordingly,  the  harmony  of  the  first  analysis  disap- 
pears, and  once  more  an  illustration  is  afforded  of  the 
danger  of  introducing  ethical l  elements  into  economic 
reasoning.  Apart,  however,  from  this  ethical  interpreta- 
tion and  supposed  harmony,  this  first  analysis  is  sufficiently 
correct,  if  we  take  it  to  mean  that  gross  profits  are  resolv- 
able into  pure  interest,  insurance  against  risk  and  wages 
of  management. 

It  will  be  found  that  these  three  elements  depend  upon 
different  causes  and  conditions.  Accordingly,  it  is  neces- 
sary to  discuss  them  separately,  before  any  meaning  can 
be  properly  attached  to  the  most  celebrated  propositions 
regarding  profits,  namely,  the  tendency  of  profits  to  an 
equality,  the  necessity  of  a  certain  minimum,  and  the  ten- 
dency of  profits  to  reach  this  minimum. 

§  3.  L' »ni  Tiitfreti.  Interest,  in  its  original  and  simple 
form,  may  be  considered  as  the  price  paid  by  the  borrower 
to  the  lender,  for  the  use  of  a  thing  for  a  time,  the  thing, 
or  its  equivalent,  being  returned  at  the  end  of  the  stated 
period.  Historically,  however,  it  is  only  in  quite  recent 
times  that  interest  has  come  to  be  regarded  as  justifiable, 
and  the  word  usury,  which  was  formerly  applied  to  all 
kinds  of  interest,  still  bears  the  taint  of  extortion.  In 
the  Tudor  period,  in  the  very  acts  of  Parliament,2  by 
which  a  certain  rate  of  interest  was  made  lawful,  the  legis- 
lature still  expressed  the  pious  opinion,  that  all  usury  was 

1  Cf.  the  criticism  of  Marx  on  the  "  abstinence  '1  theory. 

2  3  Henry  VII.,  c.  5.    13  Eliz.  c.  8. 


390  PRINCIPLES   OF   POLITICAL   ECONOMY. 

'  dampnable,'  '  contrary  to  the  law  of  God,'  '  sin,  and 
detestable,'  and  as  late  as  1624,  in  the  conclusion  of  an 
act  fixing  interest  at  8  per  cent,  we  read  :  '  provided  that 
no  words  in  this  law  shall  be  construed  or  expounded  to 
allow  the  practice  of  usury  in  point  of  religion  or  con- 
science.' The  strength  of  mediaeval  opinion  on  the  sub- 
ject, is  shown  by  the  persistence  of  the  sentiment,  long 
after  the  practice  had  become  general.  The  condemna- 
tion of  usury  —  'usury  of  money,  usury  of  victuals,  usury 
of  anything  that  is  lent  upon  usury '  —  was  supported  by 
an  appeal  to  the  Bible,1  Aristotle,  and  the  Christian 
Fathers.  It  must  be  carefully  observed  that  the  ancient 
and  mediaeval  detestation  of  '  usury '  applied  to  all  forms 
of  interest.  The  laws  passed  against  usury  were  carefully 
framed  to  cover  all  kinds  of  interest,  and  to  prevent  all 
kinds  of  evasion.  Two  points  are  specially  noteworthy, 
with  reference  to  economic  theory.  In  the  first  place,  the 
['shift,  by  selling  merchandise  to  a  person,  and,  within 
three  months  after,  buying  the  same  of  him  at  a  lesser 
price,' 2  was  expressly  condemned.  The  most  recent  theory 
of  interest,  elaborated  with  great  learning  and  ingenuity, 
by  Dr.  Boehm-Bawerk,3  rests  upon  the  idea  that  present 
goods  are  worth  more  than  future  goods,  and  that  the  dif- 
ference is  interest,  that  is  to  say,  in  this  view  the  mere  lapse 
of  time  is  itself  the  basis  of  interest,  whilst  according  to 
mediaeval  ideas,  time,  in  itself,  was  naturally  as  barren  as 
the  precious  metals. 

Secondly,  it  is  to  be  observed  that  a  phrase  constantly 
recurring  is  the  'forbearing  of  money,'  as  if  it  were 
recognised,  that  the  essence  of  usury  consists  in  '  waiting,' 

1  Deut.  xxiii.  19,  20.    The  Jew  might  lend  at  interest  to  a  stranger,  but 
not  to  his  brother.    Before  their  expulsion  from  England,  the  Jews  were 
permitted  to  lend  at  interest.    See  Madox,  Exchequer,  Ch.  VII.,  one  of 
the  most  curious  chapters  in  history.     The  subject  is  also  excellently 
handled  by  Mr.  Joseph  Jacobs  in  The  Jems  of  Angevin  England. 

2  37  Henry  VIII.,  c.  9. 

3  Capital  and  Interest,  and  The.  Positive  Theory  of  Capital,  translated 
by  W.  Smart. 

c.  y 


DISTRIBUTION.  391 

the  term  which  Professor  Marshall's  authority  has  sub- 
stituted for  abstinence.  It  is  true,  as  Dr.  Cunningham  l 
has  well  argued,  that  the  Christian  Fathers  looked  rather 
at  the  evil  in  the  heart  of  the  usurer  than  at  the  meta- 
physical characteristics  of  time  and  the  natural  barrenness 
of  money,  and  that  at  a  later  date,  the  ecclesiastical 
courts  introduced  certain  modifications  in  interpreting 
the  law  which  allowed  interest  to  be  received  in  cases 
that  were  supposed  to  be  conducive  to  the  public  good. 
But  though  casuistry  may  serve  the  purposes  of  legal 
fictions  in  loosening  the  rigidity  of  laws  the  method  is 
liable  to  abuse.  Thus  we  are  told  that  to  the  devices 
fallen  upon  to  defeat  the  laws  against  usury,  the  greatest 
part  of  the  deeds  now  in  use  in  England  and  Scotland 2 
owe  their  original  forms ;  and  again  that  whilst  the 
judges  could  not  award  interest  for  the  money,  since  that 
would  have  been  contrary  to  law,  a  moral  evil  and  an 
oppression  of  the  debtor,  still  upon  the  idea  of  damages, 
and  the  failure  of  the  debtor  in  .  the  performance  they 
unmercifully  decreed  for  double  the  sum  borrowed.  It  is 
indeed  remarkable  that  in  all  societies  in  which  severe 
penalties  have  been  imposed  on  usurers,  still  more  severe 
penalties  have  been  imposed  upon  debtors.  The  original 
and  universal  form  of  bankruptcy  was  slavery  —  the 
debtor  compounded  with  his  creditor  by  becoming  his 
slave. 

It  is  most  interesting  to  compare  in  the  mediaeval  period 
the  ethics  of  usury  with  the  ethics  of  wages.  Labour 
was  regarded  as  a  duty ;  sloth  was  one  of  the  seven 
deadly  sins ;  and  defrauding  labourers  of  their  wages 
was  one  of  the  sins  that  cry  to  Heaven  for  vengeance ;  the 
sentiment  that  labour  is  a  duty  still  survives,  and  in  most 
countries  wages  rank  as  a  preferential  claim. 

So  long  as  interest  was  regarded  as  sinful,  and  prohibited 
as  far  as  possible  by  the  law,  it  was  natural  that  the  rate 

1  Usury,  p.  35. 

2  Lectures  on  the  Laic  of  Scotland  (1793),  by  Walter  Ross.    Vol.  I.,  p.  4. 


392  PRINCIPLES   OF  POLITICAL   ECONOMY. 

charged  on  loans  actually  made,  should  be  high  enough 
to  cover  the  disagreeableness  or  danger  of  the  transaction. 
As  a  rule,  under  these  circumstances  the  borrower  was 
in  extreme  necessity,1  and  was  entirely  at  the  mercy  of 
the  lender.  Accordingly,  it  was  quite  possible  for  interest 
to  exceed  the  gross  profits  of  ordinary  trade.  Even  at 
present  in  Russia  and  India  money  is  borrowed  by  peasant 
cultivators  at  rates  far  above  the  highest  possible  return 
to  their  capital  and  labour.  It  is,  however,  clear  that 
such  a  state  of  things  could  not  become  general  in  a 
nation  without  national  bankruptcy,  and  usury  of  this 
kind  may  be  described  as  the  gross  profits  of  money-lend- 
ing rather  than  interest  proper. 

Another  consequence  of  the  difficulties  —  natural  and 
artificial  —  in  the  way  of  lending  money  at  interest  was 
that,  side  by  side  with  these  exorbitant  rates,  we  find  what  is 
best  described  as  a  negative  rate  of  interest ;  that  is  to  say, 
people  were  willing  to  pay  something  to  have  their  money 
kept  in  safety.  Thus,  in  its  early  years,  the  Bank  of  Am- 
sterdam instead  of  allowing  interest  on  deposits  practically 
made  a  charge,  and  the  bank  money  was  at  a  premium.2 

§  4.  Loan  Interest  and  Profit  Interest.  In  the  last 
section  interest  was  considered  according  to  the  method 
of  historical  definition  as  primarily  arising  from  a  loan 
of  some  kind.  But  in  the  analysis  of  profits  it  is  assumed 
that  there  is  an  element  of  interest  independently  of  any 
transaction  of  the  nature  of  a  loan.  This  assumption, 
however,  is  not  so  simple  as  at  first  sight  appears.  The 
mere  possession  of  capital  in  itself  does  not  give  interest 
except  in  the  vague  sense  of  the  pleasure  of  contemplation 
or  possession.  In  order  that  any  form  of  capital  may  yield 
revenue  it  must  either  be  used  by  the  owner  or  lent  to 
some  one  else.  If  it  is  lent,  the  yield  is  plainly  interest ; 
but  if  it  is  used  by  the  owner,  can  we  separate  interest 
from  wages  of  superintendence  ? 

1  Of.  Grote's  History  of  Greece,  Vol.  III.,  p.  144. 

2  Adain  Smith,  Bk.  IV.,  Ch.  III. 


DISTRIBUTION.  398 

The  usual  answer  in  the  affirmative  seems  to  involve 
two  further  assumptions :  I.  That  if  interest  is  not  forth- 
coming in  addition  to  the  wages  of  management  the 
accumulation  of  capital  will  be  checked,  that  as  a  con- 
sequence, the  diminished  supply  will  eventually  give 
capital  a  greater  proportionate  share  in  the  joint  product 
of  capital  and  labour,  and  thus  interest  will  again  emerge. 
II.  That  if  by  lending  any  form  of  capital,  the  owner  can 
obtain  interest,  he  will  not  retain  it  for  his  own  use  unless 
he  also  obtains  the  same  rate  of  interest.  The  first  of 
these  assumptions  is  the  basis  of  the  theory,  that  in  any 
society  there  is  a  certain  necessary  minimum  of  profits 
(variable,  it  is  true,  according  to  different  conditions)  ;  the 
second  is  the  basis  of  the  theory  of  the  tendency  of  profits 
to  equality  —  in  both  instances  of  course,  so  far  as  profits 
consist  of  interest,  the  consideration  of  other  elements 
being  for  the  present  deferred. 

§  5.  The  Minimum  Rate  of  Interest  as  an  Element  of 
Profits.  Mill  regarded  the  minimum  rate  of  interest,  con- 
sidered as  an  element  of  profits,  as  an  equivalent  to  the 
owner  of  capital  for  forbearing  to  consume  it,  which  'then 
and  there'  must  constitute  a  sufficient  motive  to  him  to 
persist  in  his  '  abstinence.'  "  How  much  will  be  required 
to  form  this  equivalent  depends  on  the  comparative  value 
placed  in  the  given  society  upon  the  present  and  future." 1 
On  this  view,  the  minimum  rate  of  interest  is  just  that  I 
rate  which  is  sufficient  to  induce  people  to  save,  rather! 
than  to  consume.  It  is,  however,  at  once  clear  that  this' 
is  a  very  variable  rate,  even  in  the  same  country,  at  the 
same  time.  Some  accumulation  would  go  on,  even  with 
negative  interest,  and  Adam  Smith  has  observed  that  a 
high  rate  of  profit  seems  everywhere  to  destroy  that  par- 
simony which,  in  other  circumstances,  is  natural  to  the 
character  of  the  merchant.2  Accordingly,  we  cannot 

1  Bk.  II.,  Ch.  XV.,  §  2. 

2  Bk.  IV.,  Ch.  VII.     He  is  discussing  the  evils  resulting  from  the  high 
rate  of  profit  due  to  the  monopoly  of  the  colonial  trade,  and  this  check 


394  PRINCIPLES   OF   POLITICAL   ECONOMY. 

strictly  speak  of  a  particular  minimum  rate  in  any  society, 
at  any  time,  as  necessary  to  accumulation  in  general ;  and 
if  Adam  Smith's  opinion  is  well-founded,  we  cannot  even 
say  that  a  rise  in  the  rate  of  interest  will  increase,  or  a 
fall  check,  accumulation.  The  truth  is,  as  already  ex- 
plained at  length  in  the  first  Book,1  the  growth  of  material 
capital  depends  upon  a  number  of  variables,  of  which  the 
rate  of  interest  is  only  one,  and  is,  furthermore,  indetermi- 
nate in  its  effect. 

It  is,  however,  quite  a  different  thing  to  say  that,  in  any 
industrial  society  in  which  competition  is  approximately 
perfect,  a  person  who  wishes  to  borrow  on  first-class 
security  must  pay  a  certain  minimum  rate,  and  that  any 
one  who  is  willing  to  lend  can  lend  at  this  rate.2  But  the 
question  still  remains:  when  the  left  hand  lends  to  the 
right,  does  a  minimum  rate  of  interest  accrue?  In  other 
words,  does  the  theory  of  equality  of  interest  extend  to 
interest  as  an  element  of  profits?  Or,  more  specifically,  is 
loan  interest  equal  to  profit  interest? 

§  6.  The  Equality  of  Interest  considered  as  an  Element 
of  Profits.  It  follows  from  the  general  principles  of  in- 
dustrial competition  that,  after  making  due  allowance  for 
any  differential  risk  or  trouble  in  employing  capital  in 
different  ways,  if  one  industry  gives  a  net  return,  in  the 
shape  of  interest  above  the  general  level,  the  attraction  of 
capital  will  tend  to  lower  the  rate ;  and  if  it  is  'below  that 
level,  the  revulsion  of  capital  will  tend  either  to  raise  it, 
or  to  destroy  the  industry. 

We  may,  then,  accept  the  common  theory  that,  so  far  as 
the  interest  element  is  concerned,  the  tendency  of  profits 
is  to  equality,  if  we  mean  by  it  that  other  things  being 
the  same  rates  above  or  below  the  average  are  unstable.  It 

to  accumulation  he  regards  as  more  fatal  than  all  the  other  evils  put 
together. 

1  Bk.  I.,  Ch.  XI. 

2  The  problem  of  interest  on  loans  as  a  question  of  value  is  discussed 
iu  Bk.  III. 


DISTRIBUTION.  395 

does  not  follow,  however,  that  in  the  long  run,  or  in  any 
more  definite  period,  the  rates  actually  earned  in  different 
employments  will  correspond  with  this  average.  A  very 
short  period  of  prosperity  may  induce  sufficient  competi- 
tion to  cause  a  prolonged  depression,  and  the  converse  is 
also  possible  though  less  probable.1  It  does  not  follow, 
either,  that,  from  individual  to  individual,  the  rate  will 
not  vary,  or  that  the  degree  of  instability  will  not  be  very 
different  in  different  cases,  even  in  the  same  industry.  It 
appears,  then,  on  a  very  rough  analysis,  that  the  tendency 
to  equality  of  profit-interest  is  a  very  different  thing  from 
the  tendency  to  equality  of  loan-interest.  The  common 
fool  will  obtain,  for  forbearing  to  sell  his  consols,  the  same 
interest  as  the  wisest  financier,  but  people  of  equal  wisdom 
who  embark  their  capital  in  businesses  of  equal  difficulty; 
will  by  no  means  obtain  equal  interest  on  their  money. 
The^quality,  as  Mill  said  of  profits  generally,  is  an  equal^ 
itj  of  expectation^  &&7L>  ohfrfa  fl  V  £  ^ 

If,  however,  the  equality  of  profit-interest  in  different 
employments  is  so  imperfect,  how  can  we  say  that,  on  the 
average,  profit-interest  tends  to  be  equal  to  the  loan-inter- 
est of  the  particular  time  and  place  ?  In  a  modern  indus- 
trial society,  the  interest  obtained  from  first-class  securities, 
in  which  both  the  risk  and  the  trouble  of  investment  may 
be  neglected,  flows  on  in  a  constant  stream  ;  the  rate  varies, 
it  is  true,  but  comparatively  slowly.  For  a  long  period 
the  yield  to  consols  has  varied  between  very  narrow  limits, 
and  the  same  is  true  of  first-class  mortgages  and  the  like. 
Whatever  the  explanation  may  be,  there  is  no  question  as 
to  the  fact. 

Can  we  affirm  that  over  a  similar  period  there  has  been 
present  in  the  profits  of  the  great  staple  industries  of 
the  country  a  corresponding  constant  element?  On  the 
contrary,  do  we  not  rather  expect  the  rate  of  profit  to  vary 
with  the  periodic  inflations  and  depressions  of  trade  ?  and 

1  A  single  day  might  ruin  a  great  many  banks,  but  the  creation  of  new 
banks  is  difficult. 


396  PRINCIPLES  OF  POLITICAL  ECONOMY. 

is  it  not  usual  to  contrast  the  uncertainty  of  profits  with 
the  sweet  simplicity  of  the  three  per  cents? 

§  7.  The  Inter-connection  of  Profit-interest  and  Loan- 
interest.  There  is,  however,  undoubtedly  a  connection 
between  the  rate  of  interest  attainable  on  loans  and  that 
element  in  the  profits  of  industry  which  is  usually  looked 
upon  as  the  pure  interest  on  the  capital  employed.  In  the 
analysis  of  general  wages  we  saw  that  we  might  consider 
the  distribution  (between  wages  and  profits)  of  the  joint 
product  of  labour  and  capital  as  depending  ultimately  on 
the  reciprocal  demand  for  the  services  of  one  another, 
that  is  to  say,  under  a  system  of  industrial  competition. 
But  the  same  idea  may  be  expressed  by  saying  that  cap- 
ital is  lent  to  labour,  that  labour  must  return  it,  or  its 
equivalent,  to  the  owners  at  the  end  of  a  certain  time,  and 
that  something  must  be  paid  by  way  of  interest.  To  the 
owner  of  capital  it  is  a  matter  of  indifference  whether  it  is 
lent  to  productive  or  unproductive  consumers.  And  the 
analogy  may  be  carried  much  further  when,  instead  of 
assuming  perfect  competition,  we  look  at  the  historical 
development  of  industry.  Just  as  in  early  usury  the 
necessities  of  the  borrower  gave  undue  power  to  the 
lender,  so,  also,  in  the  early  relations  of  labour  to  capital, 
the  power  of  the  latter  was  generally  excessive. 

The  difficulties  that  are  found  in  detecting  the  element 
of  interest  in  profits,  arise  from  the  fact  that  the  other 
two  elements,  until  recently,  were  in  general  inextricably 
combined  with  it.  The  tendency  of  modern  industry, 
however,  is  more  and  more  to  separate  this  so-called  pure 
interest  from  the  insurance  against  risk  and  the  wages  of 
superintendence.  The  owner  of  capital  is  being  differen- 
tiated from  the  employer  of  labour,  and  the  former  alone 
receives  interest. 

§  8.  Insurance  against  Risk.  "  In  all  the  different  em- 
ployments of  stock,"  says  Adam  Smith,  "the  ordinary  rate 
of  profit  varies,  more  or  less,  with  the  certainty  or  uncer- 
tainty of  the  returns.  ...  It  always  rises,  more  or  less, 


DISTRIBUTION  397 

with  the  risk.  It  does  not,  however,  seem  to  rise  in  pro- 
portion to  it,  so  as  to  compensate  it  completely.  Bank- 
ruptcies are  most  frequent  in  the  most  hazardous  trades." 
The  insufficiency  of  the  compensation  is  accounted  for  by 
the  gambling  spirit  in  human  nature  ;  but,  making  allow- 
ance for  this,  we  may  assume  that  the  effect  of  industrial 
competition  is,  on  the  whole,  to  equalise  the  element  of 
risk  in  different  employments.  The  development  of  i 
surance  societies,  especially  in  modern  times,  has  tended! 
still  further  to  make  profits  independent  of  particular 
risks.  But,  although  the  question  is  simple  when  we  are 
considering  the  equality  of  profits  in  different  industries 
in  any  given  society,  the  same  difficulty  arises  as  in  the 
case  of  interest,  when  we  look  upon  "compensation  for 
risk  "  as  an  element  in  general  profits. 

Just  as  interest  is  generally  regarded  as  remuneration  \ 
for  abstinence,  or  for  forbearing  to  consume,  so  insurance,  as 
a  part  of  gross  profits,  is  supposed  to  be  a  reward  for  under- 
going the  danger  of  losing  the  capital.     If  the  security  is 
at  all  imperfect  in  the  case  of  a  loan,  an  additional  charge 
is  naturally  made ;   and  it  may  be  similarly  argued  that 
when  capital  is  lent  to  labour  there  is  always  some  risk 
that  the   principle   with   interest  will   not  be   returned. 
Unlike  a  government,  that  may  pledge  its  taxes,  or  a  land- 
owner, who  may  pledge  his  land,  the  labourer,  as  such,  has  j 
nothing  to  pledge.     In  former  times  he  pledged  his  body,  I 
and  the  creditor,  in  case  of  default,  sold  it  alive  or  used  \ 
it  to  "bait  fish  withal,"  according  to  his  fancy.     Under 
present  conditions,  whenever  money  is  subscribed  for  any 
new  industrial  undertaking,  however  promising,  in  which 
the  only  security  lies  in  the  success  of  the  undertaking, 
there  is  a  considerable  element  of  insurance  ;  and,  to  some 
extent,  in  all  industries  that  use  borrowed  capital  the  same 
influence  is  felt. 

Most   economists,1  however,  have   considered   that   the 
element  of  risk  operates  still  more  generally.     They  em- 

1  E.g..  Mill,  Bk.  II.,  Ch.  XV.,  §  2. 


398  PRINCIPLES   OF   POLITICAL   ECONOMY. 

phasise  the  importance  of  security  as  affecting  the  accunii> 
lation  of  capital,  and,  accordingly,  they  argue  that  if  in 
any  society  the  security  of  property  is  endangered,  a  direct 
stimulus  is  given  to  immediate  consumption.  The  conclu- 
sion is  that  people  will  not  save  unless  tempted  by  a  very 
high  rate  of  compensation  for  risk.  "  The  rate  of  profit." 
says  Mill,  with  reference  to  the  insecurity  under  Asiatic 
governments,  "  which  persons  of  average  dispositions  will 
require  to  make  them  forego  the  immediate  enjoyment  of 
what  they  happen  to  possess,  for  the  purpose  of  exposing  it 
and  themselves  to  these  perils,  must  be  very  considerable." 
But  it  by  no  means  follows  that  the  rate  of  profit  will  rise 
in  response  to  the  feelings  of  the  capitalist.  His  feelings 
may,  indeed,  diminish  the  supply  if  a  high  rate  is  not 
forthcoming ;  but  demand  must  also  be  taken  into  account. 
Under  a  system  of  official  and  unofficial  robbery  and  extor- 
tion there  may  be  very  little  effectual  demand.  The  desire 
to  borrow  may  be  very  strong,  but  mere  desire  is  not  suf- 
ficient,—  the  will  must  be  backed  by  ability.  It  is  the 
game  as  in  the  case  of  a  famine.  It  is  said  that  in  Eastern 
pountries  people  may  be  dying  by  thousands  of  starvation 
without  any  appreciable  effect  on  the  price  of  food, — 
because  their  demand  is  not  effectual.  But,  if  they  cannot 
buy  for  present  payment,  neither  can  they  borrow  for 
future  payment.  Again,  to  take  a  modern  instance  from 
highly  developed  societies,  after  a  commercial  crisis  there 
is  a  general  feeling  of  insecurity  on  the  part  of  the  owners 
of  capital,  but  instead  of  a  rise  in  the  rate  of  profit  there 
is  a  contraction  of  enterprise ;  the  field  of  effectual  demand 
is  narrowed. 

The  general  conclusion,  then,  appears  to  be  that  insecu- 
rity checks  the  accumulation  of  capital,1  but  it  also  fetters 
industry.  Taking  a  broad  view,  there  is  less  to  divide 
between  capital  and  labour,  and,  though  labour  may  be 
compelled  to  take  less,  it  does  not  follow  that  capital  will 
obtain  more.  And,  indeed,  it  would  be  against  all  experi- 
i  See  Bk.  I.,  Ch.  XI. 


DISTRIBUTION.  399 

ence  to  maintain  that  under  a  system  of  arbitrary  and 
tyrannical  government  the  general  profits  of  industry  must 
be  high  on  account  of  the  risk.  Thus,  we  again  see  the 
danger  of  relying  on  a  subjective  analysis ;  even  in  com- 
pensation for  risk,  there  is  more  to  be  considered  than  the 
feelings  of  the  lender. 

§  9.  Wages  of  Superintendence.  Adam  Smith,  in  a 
passage  which  has  been  too  often  overlooked,  calls  atten- 
tion to  the  fluctuation  in  the  rate  of  profit.1  "  It  varies, 
not  only  from  year  to  year,  but  from  day  to  day,  and 
almost  from  hour  to  hour."  Later  on,  in  maintaining  that 
ordinary  profits  in  the  same  neighbourhood  in  different  in- 
dustries are  more  nearly  on  an  equality  than  the  wages  of 
different  forms  of  labour,  he  points  out  that  the  apparent 
differences  in  the  profits  of  different  trades  is  generally  a 
deception,  arising  from  not  always  distinguishing  what 
ought  to  be  considered  as  wages  from  what  ought  to  be 
considered  as  profit.  It  is  thus  indicated  that  the  principal 
source  of  uncertainty  and  inequality  in  profit  is  to  be 
found  in  the  third  element,  namely,  wages  of  superintend- 
ence. This  position  has  been  developed  by  recent  writers2 
until  it  has  become  quite  usual  to  consider  the  wages  of 
superintendence  as  the  wages  given  for  the  exercise  of 
certain  business  powers.  In  old  established  industries 
which  have  felt  the  full  force  of  competition,  if  allowance 
is  made  for  interest  on  capital  and  for  insurance  against 
risk,  the  part  left  over  as  wages  of  superintendence  is  com- 
paratively  small.  It  may,  indeed,  often  vanish  entirely,  and, 
yet  the  industry  continue  to  be  carried  on  for  a  consider-j 
able  time.3  This  is  accounted  for  by  the  fact  that  the  onlyl  • 
way  to  obtain  interest  on  the  capital  sunk  in  the  business, ' 
and  to  prevent  its  deterioration  is  to  go  on  working. 

On  the  other  hand,  however,  especially  in  new  under- 
takings, the   possession,    or   the    command,   of  a   certain 

1  Bk.  I.,  Ch.  IX.  2  E,g^  Walker  and  Marshall. 

8  E.IJ..  the  Lancashire  cotton  manufacturers  are  said  to  have  fallen 
into  this  state  for  several  years  past. 


400  PRINCIPLES   OF   POLITICAL   ECONOMY. 

amount  of  capital  is  a  necessary  condition  of  obtaining 
the  opportunity  of  exercising  business  power  and  obtain- 
ing wages  of  superintendence.  With  the  development  of 
credit  and  the  democratising,  as  Bagehot  called  it,  of  cap- 
ital, this  restriction  on  competition  becomes  less  and  less, 
and  wages  of  superintendence  tend  to  conform  to  other 
kinds  of  wages.  What  is  most  requisite,  is  not  so  much 
material  as  personal  capital,  —  the  result  of  training  and 
education,  — but  this  applies  also  to  other  forms  of  wages  ; 
and,  after  the  long  examination  already  given  of  wages, 
both  general  and  relative,  it  seems  unnecessary  to  notice 
this  element  in  greater  detail.  I  will  only  observe  that,  so 
far  as  profits  can  be  reduced  to  wages,  a  reconciliation  is 
effected  between  capital  and  labour.  Most  of  the  crude 
fallacies  of  socialism  arise  from  neglecting  the  higher 
forms  of  labour,  including  that  of  the  management  of 
capital. 

§  10.  The  Element  of  Chance  in  Profits.  There  is  a 
further  element  in  profits,  to  which,  in  general,  sufficient 
attention  has  not  been  paid.  Led  astray  by  supposed  ten- 
dencies and  harmonies,  and  by  appeals  to  the  long  run, 
many  economists  have  eliminated  altogether  what  is,  in 
some  instances,  the  most  important  element  in  profits, 
namely,  the  reward  for  good  fortune  and  audacity.  It  has 
been  supposed  that,  on  the  average,  in  the  long  run,  the 
risk  will,  so  to  speak,  just  effect  its  own  insurance.  In  a 
stable  society,  with  established  methods  of  production,  this 
tendency  may  be  admitted ;  but  in  progressive  societies, 
and  with  revolutions  in  industry,  the  reward  may  far  ex- 
ceed the  risk.  The  most  striking  case  is  afforded  by  the 
rapid  development  of  new  countries.  A  speculator  who 
has  the  good  luck  (for,  in  general,  there  is  more  luck  than 
skill)  to  hit  upon  the  site  of  a  future  town  has  simply  to 
sit  still.  But  there  are  many  other  instances  of  Conjunc- 
tur,  as  the  Germans  call  it,  and  they  naturally  excite  a 
good  deal  of  envy  on  the  part  of  the  less  fortunate.  In 
my  opinion,  this  envy  is  more  natural  than  reasonable. 


DISTRIBUTION.  401 

The  possibility  of  obtaining  these  occasional  large  returns 
has  always  been  one  of  the  greatest  incentives  to  enter- 
prise ;  it  has  been  the  principal  factor  in  spreading  the 
Anglo-Saxon  race  over  the  world.  At  the  same  time,  it 
must  be  admitted  that  the  artificial  monopolies  of  trusts 
and  syndicates  are  on  a  different  footing,  and,  also,  that 
certain  kinds  of  exceptional  gain  may  be  a  good  subject 
for  exceptional  taxation.  The  discussion,  however,  of  these 
topics  must  be  deferred,  and,  following  Mill's  example,  I 
shall  also  postpone  the  consideration  of  the  tendency  of 
profits  to  a  minimum. 


CHAPTER   XIV. 

ECONOMIC    RENT. 

§  1.  Ambiguity  of  the  Term  Rent.  "  Rent,"  says  Ri- 
cardo,  "  is  that  portion  of  the  produce  of  the  earth  which 
is  paid  to  the  landlord  for  the  use  of  the  original  and 
indestructible  powers  of  the  soil.  It  is  often,  however, 
confounded  with  the  interest  and  profit  of  capital,  and,  in 
popular  language,  the  term  is  applied  to  whatever  is  annu- 
ally paid  by  a  farmer  to  a  landlord." l  He  goes  on  to  observe 
that  the  term  is  used  in  a  still  wider  sense,  as,  for  example, 
in  the  case  of  the  price  paid  for  cutting  timber  or  for  ex- 
tracting minerals,  in  which  it  is  plain  that  the  price  is  paid 
for  the  commodities,  and  not  for  the  use  of  the  original  and 
indestructible  powers  of  the  soil.  And  he  might  have  given 
instances  of  still  wider  applications.  Thus,  as  Madox2 
shows,  "in  ancient  times,  both  in  England  and  France, 
Ferm  signified  Rent"  and  the  fee  ferme  which  the  towns 
paid  to  the  king  for  their  privileges  was  a  perpetual  rent. 
The  word  is  still  applied  to  the  hire  of  many  other  things 
besides  land,  and,  in  French,  any  one  who  lives  on  the  in- 
terest of  his  capital  is  a  rentier,  and  rente  means  revenue. 
A  recent  writer,3  in  a  very  able  work,  has  contended  that 
there  is  no  essential  difference  between  the  rent  of  land 
and  these  other  species  of  rents,  and  has  endeavoured  to 
reduce  Ricardo's  theory  to  mere  verbalism. 

That  the  theory  calls  attention  to  real  causes,  and  that 
economic  rent  is  not  to  be  confounded  with  profits  or  in- 

1  Principles,  Ch.  II.  -  Firma  Burgi,  p.  3. 

3  The  Duke  of  Argyll,  Unseen  Foundations,  p.  35. 

408 


DISTRIBUTION.  403 

terest,  is  best  seen  from  the  following  consideration :  "  It 
is  found,"  says  Ricardo,  "  that  the  laws  which  regulate  the 
progress   of   rent  are  widely  different  from   those  which 
regulate  the  progress  of  profits,  and  seldom  operate  in  the 
same  direction.     In  all  improved  countries,  that  which  is 
annually  paid  to  the  landlord,  partaking  of  both  characters,! 
rent  and  profit,  is  sometimes  kept  stationary  by  the  effects 
of  opposing  causes;  at  other  times  advances  or  recedes,  as' 
one  or  other  of  these  causes  preponderates." 

As  regards  interest,  speaking  broadly,  in  progressive 
societies  the  tendency  is  to  fall  to  a  minimum,  whilst  the 
rent  of  land  —  especially  of  land  for  building  —  tends  to 
rise.  It  is  not  asserted  that  under  all  conditions  such  is 
the  case ;  it  is  sufficient  that  a  fall  in  the  rate  of  interest 
pari  passu  with  a  rise  in  rent  has  often  been  observed. 

Stress,  also,  deserves  to  be  laid  on  the  phrase  of  Ricardo's 
to  which  most  exception  has  been  taken,  namely,  "  the  origi- 
nal and  indestructible  powers  of  the  soil."  As  so  often 
pointed  out  already,  there  are  three  great  agents  in  pro- 
duction :  Land  (typical  of  nature),  Labour,  and  Capital ; 
and,  corresponding  to  them,  in  distribution,  we  have  three 
classes  of  revenue:  Rent,  Wages,  and  Profits.  We  -  have 
seen  that  economically  the  two  latter  are  necessary  condi- 
tions for  the  creation  and  continuance  of  the  respective 
agents.  If  labour  does  not  obtain  a  certain  reward,  it  must 
perish ;  and  if  capital  does  not  replace  itself  with  some  rec- 
ompense, it  will  not  be  accumulated.  Ethically,  also,  it  is 
usual  to  observe  that  the  labourer  is  worthy  of  his  hire,  and 
that  the  capitalist  deserves  something  for  his  abstinence, 
risk,  and  trouble.  But,  so  far  as  land  and  the  gifts  of  nature 
are  concerned,  in  their  original  state,  they  are  independent 
of  human  effort ;  no  doubt,  to  yield  a  revenue  they  must, 
in  practice,  be  conjoined  with  the  other  two  agents,  but, 
logically,  they  are  quite  distinct.  Economically,  the  pe- 
culiarity is  that  land  may  yield,  for  an  indefinite  period,  an 
increasing  income,  whilst  the  owner  does  nothing ;  take, 
for  example,  the  land  on  which  London  is  built.  At  the 


404  PRINCIPLES   OF  POLITICAL  ECONOMY. 

same  time  there  is  land  that,  comparatively,  yields  only 
a  nominal  rent.  The  ethics  of  ownership  of  land,  as 
already  explained,1  is  by  no  means  so  simple  as  the  ethics 
of  wages,  or  even  of  profits. 

Seeing,  then,  that  land  is,  in  general,  the  most  important 
item  in  the  inventory  of  national  wealth,  and  that  there  is 
this  striking  difference  between  the  yield  to  land  and  the 
yield  to  most  other  forms  of  capital,  a  prima  facie  case  is 
made  out  for  giving  special  consideration  to  the  rent  of 
land.  It  will  appear  presently  that  some  other  forms  of 
revenue  are  analogous  to  the  rent  of  agricultural  land,  as 
defined  by  Ricardo,  and  it  is  convenient  to  apply  the  general 
term  "  economic  rent "  to  all  those  cases  where  the  analogy 
holds  good.  In  the  first  place,  however,  for  the  sake  of 
simplicity,  we  may  begin  with  the  economic  rent  of  agri- 
cultural land. 

§  2.  The  Economic  Rent  of  Agricultural  Land  in  its 
First  Form.  In  the  case  of  agricultural  land,  economic 
rent  follows  as  a  consequence  from  the  law  of  diminishing 
returns,2  and,  as  this  law  assumes  two  forms,  so  also  does 
the  theory  of  rent.  The  peculiar  importance  of  the  law 
in  agriculture  arises,  in  the  first  place,  from  the  limited 
quantity  and  limited  productiveness  of  land.  If  land  were 
in  the  class  of  the  free  gifts  of  nature  that  are  unlimited, 
it  would  yield  no  rent.  And,  historically,  both  in  ancient 
and  modern  times,  we  have  examples  of  land  being  super- 
abundant.3 Thus,  to  the  primitive  tribal  households,  with 
their  annual  or  frequent  shifting  of  holdings,  the  land  was 
economically  as  "  free "  as  the  air  or  the  water ;  and  in 
new  colonies  land  can  generally  be  obtained  freely  under 
the  condition  of  cultivating  it. 

Secondly,  it  will  be  remembered  that  land  is  not  uniform 

i  Cf.  Bk.  II.,  Ch.  IV. 

3  See  supra,  Bk.  I. ,  Ch.  X.  The  reader  may  be  recommended  to  refer 
to  this  chapter  in  connection  with  the  present. 

8  Cf.  the  well-known  sentence  of  Tacitus,  describing  the  Germans : 
"  Arva  per  annos  mutant  et  superest  ager."  —  Germcinia,  XX. 


DISTRIBUTION.  405 

in  quality,  and  that  the  superior  land  is  still  more  limited. 
As  already  explained,  the  superiority  varies  with  the  agri- 
cultural regime  ;  but,  at  any  particular  time  and  place  in 
general  some  land,  for  some  reason  or  other,  is  considered 
superior  to  the  rest. 

Thirdly,  at  a  very  early  stage  land  is  appropriated 1 ;  it 
may  not  be  held  as  what  would  now  be  considered  private 
property,  but  it  is  appropriated,  at  any  rate,  to  the  extent 
of  bearing  burdens  and  to  the  exclusion  of  intruders.  One 
of  the  most  ancient  of  sins  was  the  removal  of  landmarks, 
and  much  of  early  religion  is  associated  with  the  posses- 
sion of  land. 

It  follows,  then,  that  if  land  is  not  uniform  in  quality, 
and  if  the  superior  land  is  not  sufficient  to  support  the 
population,  recourse  must  be  had  to  inferior  soils.  As 
soon  as  this  occurs  the  produce  is  raised  at  different  costs. 
The  differential  advantage  of  the  superior  land  over  the 
inferior  gives  rise  to  economic  rent.  It  makes  no  differ- 
ence, logically,  whether  the  land  is  let  or  not ;  the  eco- 
nomic rent,  under  these  conditions,  is  always  there.  It  is 
also  plain  that  it  will  be  just  as  profitable  for  a  husband- 
man to  pay  something  for  the  superior  land  as  to  obtain 
the  inferior  land  rent-free.  Accordingly,  if  the  produce 
is  sold  for  money  and  the  expenses  are  also  reckoned  in 
money,  the  rent  also  may  be  stated  in  money. 

We  have  seen,  in  this  way,  how  rent  arises ;  the  next 
point  to  consider  is,  why  it  continues.  It  is  simply  be- 
cause, under  the  general  conditions  of  demand  and  sup- 
ply, the  inferior  land  must  be  cultivated  in  order  that  the 
supply  may  meet  the  demand.  The  shortness  of  supply 
raises  the  price,  and  the  rise  in  price  renders  it  profitable 
to  resort  to  worse  land.  Accordingly,  with  demand  un- 
slackened,  and  the  arts  of  production  stationary,  this  worse 
land  can  be  profitably  cultivated  on  condition  that  the 
price  remains  high.  This  is  the  essential  difference.  In  the 
typical  case  of  manufactures,  shortness  of  supply  would  also 
1  Cf.  the  Duke  of  Argyll,  op.  cit. 


406  PRINCIPLES   OF   POLITICAL   ECONOMY. 

raise  the  price,  but  in  this  case  the  supply  would  event- 
ually be  increased  at  the  same  or  at  a  decreasing  cost. 

It  is  easy  to  see  now  how  rent  is  measured.  So  long  as 
any  land  gives  any  exceptional  profit,  it  will  yield  a  rent, 
and  it  will  also  pay  to  go  to  inferior  land,  if  there  is  any. 
At  last,  however,  the  land  on  the  margin  of  cultivation 
is  reached,  the  land  which  at  the  price  current  will  only 
yield  the  ordinary  rate  of  profit,  and  which  no  man  will 
cultivate,  if  he  has  to  pay  a  rent.  The  difference  between 
the  profits  earned  on  superior  land  and  the  minimum  rate 
on  the  margin  measures  the  economic  rent. 

It  must  be  carefully  observed  that,  in  the  preceding 
exposition,  no  reference  has  been  made  to  any  particular 
unit  of  land.  The  theory  is  so  far  independent  of  the 
quantity  of  land.  The  vital  consideration  is,  in  the  words 
of  Ricardo,  that  "rent  is  always  the  difference  between 
the  produce  obtained  by  the  employment  of  two  equal 
quantities  of  capital  and  labour,"  not  from  the  employ- 
ment of  two  equal  quantities  of  land. 

It  follows  at  once  that  it  is  quite  possible  that  all  land 
should  yield  some  rent,  that  is  to  say,  economic  rent  in 
the  strict  sense.  This  point  was  admirably  brought  out 
by  Adam  Smith.  It  is  sometimes  argued  that  good  land 
and  bad  land  are  so  intermingled  that  there  is  always 
some  land  that  would  not  pay  rent  if  it  were  let  by  itself. 
But  the  assumption  is  always  confusing  and  often  er- 
roneous. Wherever  the  conditions  of  demand  and  pro- 
duction are  such  that  land  yields  any  exceptional  profit, 
that  exceptional  profit  is  rent.  The  consideration  of  this 
point  naturally  leads  up  to  a  statement  of  the  theory  of 
economic  rent  in  its  second  form. 

§  3.  The  Theory  of  Economic  Rent  in  its  Second  Form. 
Let  us  assume  now,  for  the  sake  of  simplicity,  that  all  the 
land  of  a  country,  or  industrial  area,  is  uniform  in  quality 
and  equally  advantageously  situated.  If  it  is  limited  in 
quantity  it  may  still  yield  a  rent,  owing  to  the  other  form 
of  the  law  of  diminishing  returns.  The  increased  demand 


DISTRIBUTION.  407 

for  food,  with  the  consequent  rise  in  price,  may  render  it 
possible  to  adopt  a  more  intensive  form  of  cultivation. 
But,  as  explained  in  the  first  book,1  if  the  last  doses  of 
capital  yield  the  ordinary  rate  of  profit,  the  previous  doses 
must  yield  more ;  and  again,  this  exceptional  profit  con- 
stitutes rent.  As  before,  unless  the  price  remains  high,  it- 
will  not  pay  to  work  in  these  more  expensive  modes,  there- 
fore, if  the  supply  is  to  be  forthcoming,  the  price  must  be 
kept  up,  and  consequently  the  first  doses  continue  to  yield 
rent.  In  this  case,  under  the  assumptions  made,  all  the 
land  yields  a  rent,  and  the  same  rent  per  acre. 

This  form  of  the  theory  of  economic  rent  is  not  gener- 
ally so  readily  grasped  as  the  first  form.  The  difficulty 
arises  from  the  fact  that  in  practice  the  separation  of  the 
doses  of  capital  does  not  take  place  in  the  clear  and  dis- 
tinct manner  that  the  pure  theory,  especially  in  some  kind 
of  mathematical  presentment,  assumes.  It  is,  however, 
none  the  less  true  that  rent  does  arise  in  this  way,  and 
every  farmer  is  constantly  finding  out  that  some  mode  of 
applying  capital  has  reached  the  marginal  limit.  Very 
often  farmers  make  mistakes,  and  apply  capital  that  does 
not  really  yield  even  the  ordinary  returns.  It  follows  in 
this  case  that,  if  they  are  to  obtain  the  ordinary  rate  on 
the  whole  of  their  capital,  to  make  good  the  loss  on  the 
last  portions  they  must  draw  upon  the  gains  of  the  first. 
But  that  would  be  to  deprive  the  landowner  of  part  of  his 
economic  rent.  Accordingly,  it  is  for  the  interest  of  the 
landowner  that  the  application  of  capital  should  not  be 
pushed  too  far.  Of  course,  if  the  farmer  is  content  with 
less  than  the  ordinary  rate  of  profit,  he  may  apply  more 
capital  and  be  able  to  pay  a  higher  rent  in  consequence. 
Such  is  the  case  with  peasant  cultivators,  who  are  content 
with  a  moderate  return  in  the  form  of  wages. 

It  is  worth  observing,  also,  that  if  the  owner  of  a  large 
estate  happened  to  be  a  good  farmer  and  to  have  plenty 
of  capital,  it  might  pay  him  better  to  keep  his  farms  in 
i  Bk.  I.,  Ch.  X. 


408  PRINCIPLES  OF  POLITICAL  ECONOMY. 

his  own  hands.  Suppose  —  which  was  once  true  —  that 
farming  profits  are  10  per  cent,  that  is  to  say,  that  a 
farmer  will  not  take  land  unless  his  total  capital  employed 
gives  that  return.  Now,  by  the  theory  under  review,  it 
is  possible  that  if  to  a  piece  of  land  he  applied  £5000,  it 
might  yield  12  per  cent,  that  is  to  say,  .£600.  In  that 
case  he  could  pay  a  rent  of  £100,  namely,  the  differen- 
tial 2  per  cent  beyond  the  10  per  cent  which  he  regards 
as  a  minimum.  But  it  is  possible  that  if  he  were  to  apply 
£10,000,  on  the  whole  he  would  obtain  only  10  per  cent, 
and  consequently  he  could  pay  no  rent. 

The  owner  of  the  land,  if  an  equally  good  farmer,  would 
also,  on  the  first  £5000  applied,  obtain  12  per  cent  profit 
or  £600,  but  if  he  tried  simply  to  invest  the  second  £5000 
on  good  security,  he  could  not  expect  more  than  4  per 
cent  or  £200.  Thus,  by  devoting  all  his  capital  to  his 
land,  he  would  obtain  10  per  cent  on  the  whole,  or  £1000 
a  year  in  place  of  £800. 

This  is  really  a  particular  case  of  a  general  principle. 
Every  trader,  at  least  when  trade  is  good,  naturally  em- 
ploys all  the  capital  he  can  in  his  own  business,  because  in 
that  he  gets  a  greater  return  than  by  lending  some  of  it ; 
he  gets,  namely,  the  difference  between  profits  and  inter- 
est. In  fact,  one  may  go  further  and  say  that  the  natural 
tendency,  as  noted  long  ago  by  Bacon,1  is  for  traders  to 
borrow  at  the  ordinary  rate,  so  as  to  get  more  of  this  dif- 
ference. Hence,  a  cultivating  landowner  might,  under 
certain  circumstances,  advantageously  borrow  to  extend 
his  cultivation. 

For  practical  purposes  we  must  remember2  that,  in  a 
country  where  land  is  extensively  let,  the  owner,  who  hap- 
pens to  be  a  good  farmer,  may  do  well  to  sell  his  land  in 
order  to  obtain  on  the  purchase-money  the  high  rate  of 
profit  in  farming. 

In  general,  as  Ricardo  was  careful  to  point  out,  we  have 

1  Essay  on  Uswy. 

2  See  above,  Bk.  II.,  Ch.  VIII. ;  Bk.  I.,  Ch.  IX. 


DISTRIBUTION.  409 

both  forms  of  economic  rent  conjoined ;  that  is  to  say, 
pari  passu  with  the  recourse  to  inferior  land  there  is  also 
the  adoption  of  more  expensive  modes  of  cultivating  the 
old  land. 

§  4.  Economic  Rent  and  Monopoly  Rent.  It  has  been 
shown  in  the  last  section  that  all  land  might  yield 
economic  rent,  even  if  the  land  were  uniform  in  quality 
and  there  were  no  natural  differential  advantages ;  the 
rent  arises  from  the  differential  profits  of  successive  doses 
of  capital.  For  the  sake  of  logical  completeness,  however, 
we  may  go  further  and  say  that,  even  if  the  conditions  of 
production  were  such  that  the  returns  to  every  dose  of 
capital  applied  to  land  were  precisely  equal,  economic  rent 
might  arise.  All  that  is  necessary  is,  that  the  land  should 
be  appropriated,  and  that  the  produce  should  sell  so  as  to  . 
give  more  than  ordinary  profits.  The  competition  of  the  | 
various  owners  of  land  would  prevent  them  from  exacting 
a  monopoly  rent,1  but  the  competition  of  farmers  would 
secure  to  them  any  differential  profit  obtained  from  the 
sale  of  the  produce.  It  will  be  observed,  however,  that 
in  this  case  also  we  find  the  same  elements  as  before ;  the 
land  is  considered  as  a  gift  of  nature,  but  limited  in 
quantity  and  appropriated ;  there  is  a  differential  profit ; 
and  this  differential  profit  is,  other  things  remaining  the 
same,  permanent. 

At  the  same  time,  economic  rent  even  of  this  kind,  which 
may  be  called  a  simple  scarcity  rent,  and  a  fortiori  other 
kinds,  must  be  distinguished  from  monopoly  rent.  The 
essence  of  monopoly,  as  before  observed,  is  not  limitation 
but  absence  of  competition. 

If  all  the  land  of  a  country  belonged  to  the  same  owner, 
he  might  exact  a  charge  as  a  condition  precedent  to  any 
use  of  the  land.  Such  a  case  would  arise,  for  example,  if 
government,  in  a  new  country  where  land  was  abundant, 
compelled  every  settler  to  pay  a  certain  rent.  If,  further, 
it  excluded  foreign  competition,  such  a  rent  might  rise  to 
1  See  next  section. 


410  PRINCIPLES  OF  POLITICAL  ECONOMY. 

a  great  height.  It  would  in  reality  partake  of  the  nature 
of  a  tax  ;  and  it  might  in  any  concrete  case  be  blended 
with  strictly  economic  rent  just  as  this  again  is  blended  with 
profit  rent.  If  the  cultivators  paid  the  whole  gross  rental 
with  which  the  land  was  burdened  to  government,  it  would 
be  difficult  practically  to  distinguish  the  three  elements, 
but  theoretically  the  distinction  is  clear  and  important. 

A  similar  difficulty  arises  in  connection  with  other  varia- 
tions of  economic  rent  as  will  be  seen  presently. 

§  5.  Other  Forms  of  Economic  Rent.  Next  to  agricul- 
tural land,  we  may  notice  the  rent  of  building  land. 
Here  the  purely  economic  rent  must  be  considered  as  the 
differential,  price  paid  for  superior  advantage  of  situa- 
tion. The  law  again  assumes  two  forms  ;  recourse  may 
be  made  to  inferior  land  or  the  better  land  may  be  used 
for  higher  buildings.  We  may  assume  in  a  simple  state- 
ment of  the  theory  that  the  last  site  occupied  and  the  last 
story  built,  are  on  the  margin  and  pay  no  economic  rent, 
that  is  to  say  that  they  contribute  nothing  beyond  ordinary 
profits.  As  before,  also,  we  shall  probably  have  a  blend- 
ing of  economic,  with  monopoly  and  profit,  rents.  What 
seems  to  be  part  of  the  ground  rent  pure  and  simple,  may 
be  payment  for  roads,  drainage,  etc.,  or  it  may  be  a  tax 
that  the  occupier  cannot  transfer. 

The  rent  of  mines  is  generally  partly  of  the  nature  of  the 
economic  rent.  If  the  demand  for  the  minerals  increases 
and  the  price  rises,  people  will  resort  to  worse  mines  and 
to  more  expensive  methods.  The  gross  rental  of  any  mine 
besides  the  three  elements  just  examined  will  be  partly  a 
payment,  as  Ricardo  pointed  out,  for  the  produce  itself,  and 
not  for  the  mere  use  of  the  mine.  A  similar  element  is 
found  in  all  natural  sources  that  are  capable  of  exhaustion : 
e.g.,  forests,  fisheries,  hunting  grounds,  mineral  springs. 
So  far  as  they  are  renewed  by  nature  they  yield  under  cer- 
tain conditions  an  economic  rental,  but  so  far  as  the  re- 
newal requires  the  industry  of  man,  what  appears  as  rent 
is  really  profits  or  wages. 


DISTRIBUTION.  411 

It  remains  to  add,  that  if  land  (as  typical  of  natural 
agents)  can  be  put  to  alternative  uses,  the  landowner  will 
let  it  for  that  purpose  which  yields  the  highest  net  rent. 
This  again  will  depend  on  various  conditions  of  demand 
and  supply.  Thus  under  the  old  laws  in  England  there 
were  oscillations  between  arable  and  pasture,  and  such 
oscillations  must  constantly  occur  to  a  greater  or  less 
extent.  If,  then,  people  require  land  already  let  for  one 
purpose,  e.g.,  corn,  for  something  different,  e.g.,  to  grow 
tobacco,  they  must  pay  at  least,  the  economic  rent  for- 
merly yielded.  But  the  more  land  is  used  for  certain 
things,  the  less  is  left  for  other  things.  This  is  especially 
true  of  land  the  advantages  of  which  are  rather  of  a  gen- 
eral than  a  special  character.  Accordingly,  as  regards  any 
particular  product,  the  necessity  of  resorting  to  inferior 
land  is  sooner  felt. 

The  full  consideration  of  these  topics  must  be  deferred 
until  the  theory  of  value  has  been  explained  in  the  next 
book;  as  also,  the  precise  connection  between  rent  and 
price.  At  present,  we  are  concerned  mainly  with  qualita- 
tive distinctions,  and  they  are  not  yet  exhausted. 

§  6.  Of  Analogies  to  Economic  Rent  and  of  Quasi-rent. 
So  far  we  have  confined  the  term  economic  rent  to  cases 
in  which  the  limitation  of  the  superior  source  is  supposed 
to  be  absolute,  owing  in  general,  to  certain  natural  quali- 
ties. But  we  may  get  absolute  limitation  of  anything  for 
a  certain  period,  and,  in  the  meantime,  some  producers 
may  obtain  differential  profits.  Thus  suppose  that  there 
is  suddenly  a  great  increase  in  the  price  of  some  com- 
modity which  requires,  for  its  production  in  the  best  and 
cheapest  mode,  expensive  and  durable  machinery.  It  may 
well  happen  that  until  this  can  be  obtained,  other  inferior 
modes  of  production  may  be  carried  on,  e.g.,  the  use  of 
manual  labour  in  place  of  machinery.  In  this  case  so 
long  as  the  price  remained  high,  and  enough  of  the  bet- 
ter machinery  was  not  forthcoming,  the  owners  of  the 
machinery  in  use  would  obtain  differential  profits.  To 


412  PRINCIPLES   OF  POLITICAL   ECONOMY. 

profits  of  this  kind,  Professor  Marshall  has  applied  the 
term  quasi-rent,  and  he  has  made  a  very  extensive  applica- 
tion of  his  theory. 

The  question  is,  whether  the  resemblances  outweigh  the 
differences  to  such  an  extent  as  to  justify  the  use  of  the 
term  rent  in  this  sense.  I  am  inclined  to  think  they  do 
not,  and  that  even  with  the  constant  prefix  quasi  the  new 
term  is  misleading.  It  is  true  that  the  analogy  was  pointed 
out  by  Ricardo,  and  that  he,  too,  speaks  of  the  rent  of 
machinery  under  certain  conditions,1  and  he  ought  to  be 
considered  an  authority  on  the  theory  that  bears  his  name. 
But  the  case  he  takes  is  not  only  hypothetical  but  inten- 
tionally the  reverse  of  the  truth ;  he  is  illustrating,  as  he 
so  often  does,  by  contrast.  He  is  trying  to  show  that  the 
rent  paid  for  land  cannot  be  looked  on  as  a  surplus  yielded 
by  nature  like  so  much  manna  without  any  labour.  Rent, 
he  affirms,  arises  not  from  the  generosity,  but  from  the 
niggardliness  of  nature.  "If  the  surplus  produce  which 
land  affords  in  the  form  of  rent  be  an  advantage,  it  is  de- 
sirable that  every  year  the  machinery  newly  constructed 
should  be  less  efficient  than  the  old,  as  that  would  un- 
doubtedly give  a  greater  exchangeable  value  to  the  goods 
manufactured  not  only  by  that  machinery,  but  by  all  the 
other  machinery  in  the  kingdom ;  and  a  rent  would  be 
paid  to  all  those  who  promised  the  most  productive 
machinery." 

To  bring  the  matter  to  an  issue  it  may  be  well  to  re- 
capitulate the  conceptions  that  are  fundamental  in  the 
economic  rent  of  land  in  the  strict  or  narrow  sense.  (1) 
Rent  in  this  sense  is  paid  for  the  use  of  those  qualities  of 
land  that  are  not  created  by  labour  and  capital,  and  which 
cannot  be  increased  by  human  industry — in  the  words  of 
Ricardo  the  original  and  indestructible  powers  of  the  soil. 
It  was  this  element  Adam  Smith  had  in  view  when  he 
said  that  "the  rent  of  land  considered  as  the  price  paid 

1  P.  39,  McCulloch's  edition.  See,  also,  p.  37  for  an  application  of 
marginal  cost  to  all  valuable  things  including  manufactures. 


DISTRIBUTION.  413 

for  the  use  of  land  is  naturally  a  monopoly  price.  It  is 
not  at  all  proportioned  to  what  the  landlord  may  have 
laid  out  on  the  improvement  of  the  land  or  to  what  he  can 
afford  to  take,  but  to  what  the  farmer  can  afford  to 
give." ! 

(2)  In  the  second  place,  however,  we  find  that  the  con- 
ception of  differential  advantage  is  equally  fundamental. 
Considered  as  an  instrument  of  production  land  is  of  differ- 
ent qualities :  —  there  are,  for  example,  always  the  differ- 
ences of  situation.     It  follows  then,  that  if  the  worst  land 
in  use  yields  a  nominal   rent  (or  no  rent)  the   superior 
kinds  of  land  yield  a  substantial  surplus.     A  man  apply- 
ing a  certain  amount  of  labour  and  capital  to  one  piece  of 
land  can  only  just  make  it  pay,  whilst  if  he  applies  the 
same  amount  to  another  piece  of  land  there  is  an  excess  of 
profits.     This  is  the  differential  element  in  economic  rent. 

(3)  Although  the  land  itself   cannot  be  increased  it 
may  be  used  to  a  greater  and  greater  degree.     If,  owing 
to  an  increased  demand,  there  is  a  rise  in  the  price  of 
its  produce,  the  exceptional  profit  will  lead  to  an  increase 
in  the  supply,  but  the  supply  can  only  be  obtained  at 
an  increasing  cost;  that  is  to  say,  other  things  remain- 
ing the  same,  the  law  of   diminishing  return  comes  into 
operation.     So  long,  then,  as  the  demand  continues   the 
price  must  remain  high  enough  to  compensate  for  these 
inferior  methods  of  production. 

In  brief,  then,  economic  rent  is  paid  for  something  not 
made  by  hands  ;  it  is  in  all  cases  a  differential  profit ;  and 
this  differential  profit,  other  things  remaining  the  same,  is 
permanent. 

In  quasi-rent,  however,  as  I  understand  it,  the  essential 
condition  is  that  for  a  time  the  instruments  of  production 
cannot  be  increased  in  response  to  an  increase  in  demand 
and  rise  in  price,  and  consequently  the  possessors  of  the 
old  instruments  obtain  for  a  time  a  differential  profit. 

1  Bk.  I.,  Ch.  XI.  He  should  have  said  '  scarcity  '  instead  of  '  monop- 
oly,' but  his  meaning  is  clear. 


414  PRINCIPLES   OF  POLITICAL   ECONOMY. 

Thus,  of  the  three  elements  in  economic  rent,  only  one  is 
present,  for  the  quasi-rent  is  paid  for  the  work  of  man  and 
is  not  permanent ;  on  the  contrary,  the  supply  of  the  in- 
struments of  production  will  be  increased  as  fast  as  possi- 
ble and  the  quasi-rent  will  dwindle  in  proportion. 

Pushed  to  its  logical  extreme,  the  doctrine  of  quasi- 
rent  amounts  to  saying  that  the  difference  between  the 
market  price  of  anything  and  its  normal  price  is  an  unsta- 
ble profit,  which  it  will  take  a  longer  or  shorter  time  to 
redress.  The  subject  will  again  call  for  discussion  in  the 
theory  of  value  in  the  next  book.  In  the  meantime,  I  may 
observe  that  in  the  case  of  land  itself,  it  takes  time  to  ad- 
just the  cultivation,  either  extensively  or  intensively  to  an 
increased  demand :  therefore,  during  this  time,  more  than 
the  normal  economic  rent  will  be  paid  for  the  natural 
qualities,  and  this  difference  will  be  a  quasi-rent.  In  this 
case,  at  any  rate,  the  advantage  of  the  analogy  seems 
doubtful.  On  the  whole,  in  my  opinion,  quasi-rent  is  a 
species  of  Conjunctur  profits. 

To  prevent  misunderstanding,  I  must  remind  the  reader 
that  so  far  my  difference  with  Professor  Marshall  is  mainly 
verbal,  or  at  most,  it  is  a  question  of  classification  and 
analog}'.  Such  questions,  however,  often  have  important 
consequences. 

§  7.  The  Progress  of  Economic  Rent.  I  propose  to 
take  up  at  a  later  stage,  the  consideration  of  the  effects 
of  industrial  progress  on  rent,  but  as  in  the  preceding  sec- 
tions I  have  followed,  for  the  purpose  of  clear  exposition, 
the  hypothetical  description  of  Ricardo,  a  word  of  criticism 
and  explanation  seems  necessary.  Ricardo,  under  the 
influence  of  his  time,  assumes  that  there  is  a  constant 
tendency  for  economic  rent  to  rise,  owing  to  the  constant 
increase  of  population  and  the  resort  to  inferior  lands  or 
more  expensive  modes  of  production.  That  is  to  say,  it 
is  supposed  that  population  first  increases,  that  more  is 
produced  at  a  greater  cost  and  that,  therefore,  rents  rise. 
We  find"  that  this  does  actually  occur  in  some  cases  when 


DISTRIBUTION.  415 

the  population  is  mainly  rural  and  engaged  for  the  most 
part  in  agriculture.  But  first,  it  must  be  remarked  that 
such  an  increase  of  population  is  generally  against  the 
interest  of  the  landowner,  since  minute  subdivision  tends 
to  make  rents  disappear  and  to  increase  poor  rates  in 
some  form.  Secondly,  when  an  increase  of  population 
has  tended  to  raise  rents,  it  has  generally  been  an  increase 
of  the  town  population  as  explained  by  Adam  Smith,  in 
the  chapter,  entitled  :  "  How  the  Commerce  of  Towns  con- 
tributed to  the  improvement  of  the  country."  1  Thirdly, 
we  find  historically,  that,  in  general,  it  is  not  the  increase 
of  population  that  makes  an  extension  of  the  margin  in- 
evitable, but  that  improvements  in  cultivation  render  the 
increase  of  population  possible.  Farmers  learn  to  culti- 
vate inferior  land  with  advantage  and  to  apply  more  capi- 
tal to  the  better  land.  That  part  of  the  increased  rent 
which  is  due  entirely  to  improvements,  is  of  course,  profit 
rent,  but  there  may  be  at  the  same  time,  a  rise  in  economic 
rent,  and,  in  fact,  economic  rent  may  be  steadily  rising, 
although  the  price  of  produce  is  steadily  falling.2 

§  8.  Conclusion.  A  point  has  now  been  reached  in  the 
treatment  of  the  laws  of  the  distribution  of  wealth,  at 
which  it  becomes  necessary  to  consider  in  the  words  of 
Mill,  the  instrumentality  by  which,  in  civilised  societies, 
that  distribution  is,  for  the  most  part,  effected :  the  ma- 
chinery of  exchange  and  price.  It  is  true  that  to  some 
extent,  the  theory  of  value  has  been  anticipated,  especially 
in  the  present  chapter,  but  it  has  not  been  made  funda- 
mental. My  object  has  been,  instead  of  assuming  simply 
that  exchange  is  the  principal  agency  in  distribution  in 
the  highest  modern  civilisations,  to  indicate  the  gradual 
development  in  the  force  of  this  principle  and  the  gradual 
suppression  and  extrusion  of  other  principles.  The  gen- 

1  Bk.  IV.,  Ch.  iv. 

2  In  the  same  way  there  might  be  a  rise  in  ground  rents,  whilst  the 
gross  rental  (that  is,  including  the  building  profit)  was  falling.    The 
problem,  however,  is  one  of  value. 


416  PRINCIPLES  OF  POLITICAL  ECONOMY. 

eral  conclusion  is,  that  the  increasing  complexity  of  the 
processes  of  production  instead  of  calling  forth  increased 
control  on  the  part  of  the  state,  has  diminished  that  control 
relatively,  if  not  absolutely ;  it  has  made  voluntary  agree- 
ment the  ruling  force  of  the  whole  system.  The  millions 
of  contracts  of  millions  of  individuals  in  the  body  politic, 
may  be  compared  to  the  cells  of  which  the  human  body  is 
built  up,  and  which  perform  their  functions  unobserved 
and  uncontrolled  by  the  reason:  the  reason  may  indeed 
assist  in  the  prevention  or  cure  of  disorders  to  some  ex- 
tent, and  so,  also,  may  the  state ;  but  if  compulsion  is  to 
take  the  place  of  freedom,  the  present  industrial  system  of 
production  must  fall  to  pieces.  The  position,  however,  is 
too  important  to  be  passed  over  with  an  illustration  which 
may  be  misleading;  in  the  concluding  chapter  of  this 
book,  I  propose  to  apply  the  results  so  far  obtained,  to 
test  some  prominent  forms  of  economic  Utopias. 


DISTRIBUTION.  417 


APPENDIX  TO  CH.  XIV. 

The  following  is  a  reprint  of  Ch.  VIII.  of  my  book,  Tenant's 
Gain  not  Landlord's  Loss,  written  in  1883. 

THE  CAUSES  WHICH  DETERMINE  THE  FAIR  RENT  OF  LAND. 

"The  rent  of  land  corresponds  to  the  price  of  goods,  but  doubtless  was 
infinitely  slower  in  conforming  to  economical  law,  since  the  impression  of  a 
brotherhood  in  the  ownership  of  land  still  survived  when  goods  had  long 
since  become  the  subject  of  individual  property.  .  .  .  What  is  sometimes 
called  the  feudal  feeling  has  much  in  common  with  the  old  feeling  of 
brotherhood,  which  forbade  hard  bargains,  though,  like  much  else,  it  has 
passed  from  the  collective  community  to  the  modern  representative  of  its 
autocratic  chieftain." — Village  Communities.  SIR  HENRY  S.  MAINE. 

WHATEVER  opinion  is  held  concerning  the  theoretical  value  of 
Ricardo's  doctrine  of  Rent,  it  must,  I  think,  be  admitted  that  it  is  too 
abstract  to  be  of  practical  utility.  The  rents  which  should  be  paid  in 
Great  Britain  depend  on  a  number  of  variable  causes,  which  it  is 
impossible  to  bring  in  merely  as  modifications  of  the  law  of  diminish- 
ing returns.  These  causes  fall  naturally  into  three  groups,  according 
as  they  affect  (a)  the  amount  of  produce,  (£>)  the  price  of  that  produce, 
and  (c)  the  expenses  of  production. 

(a)  Causes  affecting  the  amount  of  the  produce.  —  The  recent  agri- 
cultural depression  has  made  abundantly  clear  that  over  the  period  of 
the  average  duration  of  a  lease  the  most  important  factor  in  determin- 
ing the  amount  of  the  produce  is  the  state  of  the  seasons,  and  it  seems 
equally  clear  that  even  nineteen  years  is  not  sufficiently  long  to  ensure 
an  "average"  crop.  No  one  who  entered  on  a  lease  ten  years  ago 
could  have  foreseen  the  seasons  which  were  to  follow,  and  but  for 
the  natural  persistence  of  good  old  customs,  the  lease  system  would 
have  received  its  death-blow.  Next  in  importance  to  the  seasons,  as 
affecting  the  amount  of  the  produce,  is  the  security  for  the  investment 
of  capital  by  the  tenant.  Even  that  extent  of  security  afforded  by  a 
nineteen-years'  lease  has  made  Scotch  farming,  in  the  opinion  of  the 
best  authorities,  the  most  productive  in  the  world.  The  advantage  of 
such  security  is  shown  as  much  by  the  faults  as  by  the  merits  of  the 


418  PRINCIPLES   OF   POLITICAL   ECONOMY. 

lease  system.  It  is  well  known  that  as  the  lease  approaches  its  close 
the  farmer,  in  the  natural  and  undisguised  endeavour  to  get  back  as 
much  of  his  capital  as  possible,  takes  so  much  out  of  the  land  that  for 
some  years  after  the  yield  is  considerably  reduced.  The  extraordi- 
nary improvements  effected  by  peasant  proprietors  must  also  be 
ascribed  to  the  security  afforded  by  ownership. 

Another  cause  of  primary  importance  in  determining  the  amount  of 
the  produce  is  the  energy  and  skill  of  the  farmer.1  Perhaps  the  best 
illustration  of  this  is  to  be  found  in  the  fact  that  large  estates  farmed 
under  a  system  of  delegated  management  are  not  nearly  so  productive 
as  when  let  to  tenant  farmers.  There  is  nothing  a  large  proprietor 
dislikes  so  much  as  having  farms  thrown  on  his  hands.  Again,  it 
has  often  been  asserted  that  there  is  at  present  a  good  opening  for 
Scotch  farmers  in  the  Midlands  of  England,  on  farms  which  have 
been  abandoned  by  the  less  skilful  Southerner.  Agriculture,  too,  is 
rapidly  becoming  more  dependent  on  science  and  technical  training. 
A  farmer,  for  example,  who  does  not  understand  the  composition  of  the 
artificial  manures  he  uses,  and  who  does  not  know,  except  by  hearsay, 
the  effect  of  the  different  ingredients,  cannot  obtain  so  much  from  his 
land  as  the  man  who  has  carefully  studied  these  matters,  and  it  would 
be  easy  to  extend  the  list  of  scientific  requirements.  In  connection 
with  agricultural  skill,  "  freedom  of  cropping  "  ought  to  be  mentioned, 
taking  the  term  in  its  widest  sense ;  for  there  can  be  no  doubt  that  in 
many  cases  land  is  less  productive  than  it  might  be,  owing  to  restric- 
tions placed  on  the  enterprise  of  the  farmer  as  regards  the  kind  of 
crop.  The  efficiency  of  the  labourers  must  also  operate  largely,  and 
it  appears  from  the  Report  of  the  Agricultural  Commission  that 
farmers  have  suffered  from  the  deterioration  of  agricultural  labour. 
This  may  be  easily  accounted  for  by  the  increasing  emigration  of 
the  better  members  of  that  class,  owing  to  the  higher  rate  of  wages 
and  greater  chance  of  success  in  manufacturing  industries.  Another 
illustration  is  afforded  by  the  slovenly  work  performed  under  the  old 
system  of  poor  relief.  In  some  cases  production  is  checked  by  want 
of  capital  on  the  part  of  the  tenant,  and  this  is  one  of  the  principal 
arguments  against  the  laws  of  distress  and  hypothec.  It  is  said  that 
the  landlord,  knowing  himself  to  be  secure,  takes  a  tenant  without 
sufficient  capital,  and  the  tenant  is  unable  to  borrow,  owing  to  the 
preferential  claim  of  the  landlord.  Again,  it  can  hardly  be  doubted 
that  the  want  of  capital  is  one  of  the  chief  causes  of  the  comparative 
unproductiveness  of  Irish  agriculture. 

(6)  Causes  affecting  the  price  of  the  produce. — The  second  group  of 
causes  determining  rent  consists  of  those  which  affect  the  prices 

1  An  Aberdonian,  it  is  said,  can  pay  30  per  cent  more  rent  for  his  land  than 
the  average  British  farmer  conld  afford. 


DISTRIBUTION.  419 

obtained  for  the  produce.  Changes  in  price  may  occur  either  owing 
to  some  change  in  the  standard  of  value,  or  to  changes  in  the  demand 
and  supply  or  in  the  conditions  of  production,  of  agricultural  com- 
modities. It  is  unnecessary  at  this  point  to  enumerate  the  various 
causes  which  may  affect  prices  generally  —  the  rate  of  production  of 
the  precious  metals,  the  economies  in  their  use,  the  expansion  or 
contraction  of  trade,  changes  in  the  currency  of  nations,  etc.  —  but  it 
may  be  asserted  with  some  confidence  that  the  course  of  general 
prices  for  the  next  nineteen  years  is  as  uncertain  and  indeterminate 
as  the  course  of  the  seasons.  It  has  been  estimated  that  in  England 
99 1  per  cent  of  commercial  transactions  are  completed  without  the 
intervention  of  money,  and  much  further  economy  in  the  use  of 
bullion  seems  hardly  possible.  Yet,  at  the  same  time,  this  gigantic 
credit  system  has  for  its  foundation  the  \  per  cent  of  bullion ;  if 
a  few  millions  were  withdrawn  from  the  Bank  of  England,  the 
whole  structure  would  totter  or  collapse.  Whilst  this  is  the  case  in 
England  and  in  the  more  populous  and  civilised  parts  of  America,  in 
the  Western  States,  on  the  other  hand,  there  is  an  increasing  demand 
for  bullion.  It  is  possible  that  America,  if  its  trade  and  population 
increase  as  rapidly  as  they  have  done  during  this  century,  may  for  the 
future  absorb  gold  as  steadily  as  India  does  silver.  In  the  sixteenth 
century  English  agriculture  was  seriously  affected  by  the  amount  of 
treasure  brought  from  the  New  World ;  the  general  rise  in  prices 
consequent  on  the  increase  of  the  precious  metals  began  with  those 
commodities  which  were  most  marketable,  and  only  slowly  extended 
over  the  articles  which  did  not  naturally  find  their  way  into  the 
general  markets  of  the  country.  It  is  quite  possible  that  the  absorp- 
tion of  the  precious  metals  by  America  and  our  Colonies  may  lead  to 
results  of  a  converse  kind.  If  a  general  fall  of  prices  occurs  before 
the  end  of  the  century,  the  commodities  first  affected  will,  no  doubt, 
be  manufactures ;  but  wages  tend  more  and  more  to  follow  the  course 
of  prices  in  manufacturing  industries,  and  a  general  fall  in  wages  will 
immediately  lead  to  a  fall  in  the  price  of  agricultural  luxuries  (meat, 
etc.).  If  such  an  event  occurs,  the  farmer  obviously  cannot  at  once 
recoup  himself  by  the  diminished  expenses  of  labour.  It  is  sometimes 
assumed  that  any  cause  which  affects  prices  in  general  makes  no 
difference  in  relative  values,  and  it  may  be  supposed  that  the  farmer 
will  gain  with  one  hand  what  he  loses  with  the  other.  But  although 
the  assumption  is  correct  when  equilibrium  has  been  attained,  the 
passage  from  one  level  of  prices  to  another  is,  as  a  matter  of  fact, 
accompanied  by  very  great  disturbances  of  relative  values.  Many 
more  arguments  might  be  brought  forward  in  support  of  the  conten- 
tion that  for  nineteen,  or  even  for  ten  years  the  course  of  general 
prices  is  indeterminate,  and  that  a  change  in  general  prices  wHl 


420  PRINCIPLES  OF  POLITICAL  ECONOMY. 

disturb  the  relative  values  of  agricultural  produce;  but  enough  has 
been  said  to  illustrate  the  extreme  uncertainty  of  the  prices  the  farmer 
will  obtain,  even  when  we  take  into  account  only  the  causes  which 
affect  the  value  of  commodities  in  general.  But  this  uncertainty 
becomes  still  greater  when  we  take  into  consideration  the  causes  which 
affect  agricultural  prices  specially.  As  far  as  corn  is  concerned,  it 
may  be  maintained  that  its  price  will  for  many  years  be  determined 
by  its  cost  of  production  in  America  or  our  Colonies.  The  supplies 
we  receive  from  abroad  form  such  a  large  proportion  of  the  total 
amount  consumed  (about  one-half),  that  any  falling-off  in  the 
importations  would  be  immediately  followed  by  a  rise  in  price.  It 
will  be  remembered  that  on  the  outbreak  of  the  war  between  Turkey 
and  Russia  the  price  of  the  quartern  loaf  was  raised  one  penny  on 
account  of  the  anticipated  check  to  the  Russian  trade,  and  it  is  note- 
worthy that,  in  spite  of  the  great  deficiency  of  the  home  harvests 
during  the  recent  depression,  the  price  of  corn  was  not  affected, 
owing  to  the  enormous  supplies  from  America.  It  may  be  anticipated 
that,  in  spite  of  the  rapid  growth  of  population  in  the  New  World  and 
the  Colonies,  a  long  period  must  elapse  before  the  point  of  diminish- 
ing return  is  reached.  There  are  still  vast  tracts  of  country  to  be 
brought  under  the  plough,  and  when  all  the  land  has  been  put  under 
cultivation,  it  has  still  to  be  subjected  to  the  serious  operation  of  high 
farming,  in  place  of  the  "  tickling  "  practised  at  present.  As  soon  as 
high  farming  becomes  profitable,  the  settlers  on  the  new  lands  can 
avail  themselves  of  all  the  arts  of  the  Old  World.  There  can  be  but 
little  doubt  then  that  for  a  considerable  period  the  cost  of  production 
abroad  will  determine  the  price  of  corn  in  this  country.  But  whether 
this  cost  of  production  is  likely  to  rise  or  fall  can  hardly  be  con- 
jectured. The  cost  of  transport  will  probably  diminish,  and  the  rate 
of  profit  may  possibly  fall ;  but,  on  the  other  hand,  the  cost  of  labour 
may  rise,  and,  when  the  virgin  soil  is  exhausted,  manures  must  be 
used.  Again,  if  America  adopts  free  trade,  an  enormous  stimulus 
will  be  given  to  agriculture,  and  a  still  further  fall  in  the  price  of  corn 
ensue,  for  free  trade  may  be  expected  to  lower  the  price  of  corn  in 
America  in  the  same  way  as  it  lowered  the  price  of  manufactures 
in  our  own  country.  The  prices  of  meat  and  dairy  produce,  in  so  far 
as  independent  of  the  price  of  corn,  do  not  seem  at  present  to  be 
quite  so  much  under  the  influence  of  foreign  competition.  Apart 
from  the  difficulties  of  transport  the  quality  of  the  article  has  to  be 
considered,  and  as  far  as  the  better  qualities  are  concerned  competi- 
tion is  not  so  much  to  be  feared.  Still  there  can  be  no  doubt  that 
the  foreign  supply  will  increase,  and  it  is  quite  possible  that  English 
mutton  may  follow  the  example  of  English  wool.  It  is  clear,  then, 
that  the  kind  of  crop  is  an  important  element  in  determining  rent. 


DISTRIBUTION.  421 

(c)  Causes  affecting  the  expenses  of  production.  —  The  third  group  of 
causes  which  operate  on  rent  consists  of  the  factors  which  enter  into 
the  expenses  of  production.  One  of  the  most  important  is  the  cost 
of  labour.  It  may,  I  think,  be  anticipated  that  the  rate  of  agricul- 
tural wages  will  for  some  time  continue  to  rise  relatively  to  other 
wages.  The  spread  of  education  will  inevitably  increase  the  number 
of  emigrants,  and  we  may  expect  the  best  agricultural  labourers  to  go 
to  the  Colonies,  where  their  peculiar  qualifications  are  most  in  request. 
Hence,  probably,  labour  will  both  become  dearer  and  less  efficient; 
and  the  report  of  the  late  Commission  shows  that  these  effects  have 
already  commenced. 

Immigration  to  the  towns  operates  as  powerfully  in  the  same  direc- 
tion as  emigration  from  the  country.  It  has  long  been  a  subject  of 
remark,  that  the  rate  of  agricultural  wages  is  always  higher  in  the 
neighbourhood  of  large  towns,  and  the  conjecture  may  be  hazarded, 
that  with  increased  knowledge  and  increased  facilities  of  communica- 
tion, agricultural  wages  may  at  no  distant  date  rank  higher  than  the 
rate  in  most  manufactures.  If  such  an  event  takes  place,  no  doubt 
encouragement  will  be  given  to  substitute  machinery,  but  such  ma- 
chinery will  require  greater  skill  in  its  manipulation,  and  wages  may 
rise  still  higher.  The  other  elements  of  expense  involve  technical 
rather  than  economic  considerations,  but  perhaps  the  opinion  may  be 
expressed  that  the  cost  of  machinery  will  tend  to  fall,  and  the  price 
of  manures  to  rise. 

There  is,  however,  still  one  element  affecting  rent  to  be  taken  into 
account,  which,  logically,  should  be  classed  with  expenses,  and  that 
is  —  farmers'  profits.  Under  a  system  of  competition  rents,  where 
farming  is,  like  any  other  business,  carried  on  for  profit,  the  usual 
rate  of  profit  is  as  much  part  of  the  expenses  as  the  usual  rate  of 
wages.  If  education  and  increased  facilities  of  communication  tend 
to  increase  the  emigration  of  labour,  still  more  will  they  increase  the 
emigration  of  the  farmer  and  his  capital.  The  number  of  British 
farmers  who  have  emigrated  during  the  last  ten  years  is  very  consid- 
erable, and  would,  no  doubt,  have  been  greatly  increased,  but  for  the 
system  of  leases.  Landlords  cannot  expect  fanners  to  go  on  cultivat- 
ing their  laud  if  they  are  to  obtain  little  or  no  profit.  In  determining 
a  "  fair  "  rent,  then,  the  rate  of  profit  is  an  important  factor. 

It  follows,  from  the  variety  of  causes  considered,  and  the  number 
might  have  been  easily  increased,  that  a  "fair"  rent  is  a  surplus 
which  is  uncertain  and  indeterminate.  The  popular  notion,  probably 
founded  on  the  tradition  of  customary  rents,  and  in  England  on  the 
fact  that  land  was  until  recently  generally  undervalued,  that  for  every 
farm  there  is  a  certain  "  natural  "  rent,  which  a  "  practical "  man  can 
easily  determine  from  the  quality  of  the  soil,  the  state  of  the  drains, 


422 


PRINCIPLES   OF   POLITICAL   ECONOMY. 


etc.,  must  be  abandoned.  The  relative  value  of  two  farms,  as  instru- 
ments of  production,  the  practical  men  may,  no  doubt,  readily  deter- 
mine, but  the  fair  letting  value,  for  a  long  term  of  years,  requires 
mauy  more,  and  more  complex  considerations  to  be  taken  into 
account.  The  practical  man  certainly  shot  very  wide  of  the  mark 
ten  years  ago.  The  persistence  of  the  notion  is  very  well  illustrated 
by  the  fact  that  the  proposal  to  fix  rents  in  Ireland  for  a  term  of 
fifteen  years  met  with  very  little  opposition.  It  is  to  be  hoped,  on 
political  and  social  grounds,  that  the  Commissioners  have  left  a  con- 
siderable margin  in  favour  of  the  tenant. 

As  an  illustration  of  the  difficulty  of  determining  rent,  I  give  a 
table  from  the  Appendix  to  Sir  James  Caird's  Landed  Interest,  which 
shows  the  average  rent  of  cultivated  land  per  acre  at  three  different 
periods,  and  some  of  the  principal  elements  which  affect  rent. 


TABLE 

Showing  the  Rent  of  Cultivated  Land,  the  Price  of  Provisions,  the  Wages 
of  the  Agricultural  Labourer,  the  Bent  of  Cottages,  and  the  average 
Produce  of  Wheat,  in  three  periods,  during  more  than  a  hundred  years 
in  England. 


1770. 

1850. 

1878. 

s.     d. 

s.     d. 

s.     d. 

Rent  of  Cultivated  Land  per  acre  .     .     . 

13  0 

27  0 

30  0 

Price  of  Bread  per  Ib  

01  1 

01  1 

Price  of  Meat  per  Ib  

OQl 

Oc 

Price  of  Butter  per  Ib  

Oa 

In 

Agricultural  Labourer's  Wages  per  week. 

1     3 

9  7 

14  0 

Rent  of  Labourer's  Cottage  per  week 

0     8 

1    5 

2   0 

Bushels. 

Bushels. 

Bushels. 

Produce  of  Wheat  per  acre  in  bushels     . 

23 

26$ 

28 

Now  how  can  the  fact  that  between  1770  and  1878  rent  was  more 
than  doubled  be  explained  ?  The  yield  per  acre  has  indeed  increased, 
butter  contra,  the  rate  of  wages  has  been  almost  doubled;  again,  the 
price  of  bread  is  the  same,  whilst  meat  and  butter  have  risen  to  nearly 
three  times  their  former  value.  As  far  as  the  facts  in  the  table 
indicate,  the  causes  of  the  rise  in  rent  appear  to  be  the  increased 


DISTRIBUTION.  423 

productiveness  of  the  soil,  and  the  great  rise  in  the  price  of  other 
kinds  of  produce  than  corn.  Rut  the  problem  could  not  be  fully 
solved  without  bringing  in  other  elements,  e.g.,  the  relative  amounts  of 
taxation  incident  on  land,  the  rates  of  profit  current  at  the  two 
periods,  the  cost  of  carriage  of  materials,  and  products,  etc.  We 
should  further  have  to  take  into  account  the  course  of  seasons  in  the 
years  preceding,  and  the  course  of  prices.  It  would  have  to  be  con- 
sidered also,  how  far  in  the  former  period  rents  were  customary,  and 
how  fa:  in  the  latter  they  were  really  competition  rents.  And  after 
making  all  allowances,  it  would  be  well  to  compare  the  corresponding 
rise  in  Belgium,  and  especially  in  France,  where  there  has  been  no 
increase  in  population. 


CHAPTER   XV. 

ECONOMIC   HISTORY   AND   ECONOMIC    UTOPIAS. 

§  1.  The  Reality  of  Economic  History.  Economic  His- 
tory is  a  history  of  certain  kinds  of  facts,  and  not  of  certain 
kinds  of  opinions  and  theories,  except  in  so  far  as  these 
last  serve  to  account  for  and  explain  the  facts.  The  pre- 
cise limits  of  its  sphere  as  distinguished  from  the  history 
of  law,  religion,  art,  and  morality  will  vary  partly  with 
the  mode  of  treatment  adopted,  and  partly  with  the  period 
and  country  under  consideration ;  just  as  the  treatment  of 
the  principles  of  political  economy  must  be  tinged  to  some 
extent  with  the  personality  of  the  author  and  the  spirit 
of  his  time.  As  in  other  forms  of  history  and  in  other 
sciences,  the  evidence  is  always  more  or  less  incomplete, 
and  consequently  a  description  is  liable  to  be  corrected 
and  a  judgment  to  be  upset  when  new  facts  are  brought 
to  light,  or  stronger  minds  and  wider  grasp  are  devoted  to 
the  subject.  The  central  position,  however,  is  perfectly 
clear:  economic  history  deals  with  the  actual  conditions 
of  the  past.  It  follows  at  once,  that,  although,  as  in 
geology,  guiding  hypotheses  are  necessary,  and  sometimes 
the  reasoning  is  pushed  far  from  the  substratum  of  facts, 
still  there  must  be  a  constant  and  arduous  search  for  fresh 
evidence.  The  principal  danger  is  to  accept  too  readily  any 
testimony  which  appears  to  be  favourable  to  pre-conceived 
opinions.  This  danger  receives  a  very  vivid  illustration 
from  the  numerous  examples  of  the  reconstruction  of  primi- 
tive societies  a  priori.  If  with  our  present  knowledge  we 
turn  to  some  of  the  histories  of  this  kind  written  in  the 

424 


DISTRIBUTION.  425 

eighteenth  century,  we  discover  not  only  that  they  are  in- 
complete, but  that  they  are  in  general  the  exact  opposite  of 
the  truth.  In  this  liability  to  error,  economic  history  is, 
of  course,  not  peculiar ;  primitive  religions  and  languages, 
to  take  but  t\vo  examples,  have  in  our  own  days  been  built 
upon  equally  imaginary  foundations.  The  so  called  natural 
sciences  also  have  suffered  in  the  same  way ;  geology  has 
been  warped  by  the  religion,  astronomy  by  the  imagina- 
tion, and  even  mathematics  by  the  philosophy1  of  the 
investigator.  Nor  must  we  suppose  that  the  mere  recogni- 
tion of  the  danger  and  the  attempt  to  apply  a  better  method 
is  sufficient  to  secure  us  from  similar  errors.  The  founda- 
tion of  all  reasoning  is  the  discovery  of  differences  and 
resemblances,  and  the  first  comparison  we  naturally  make 
is  with  our  own  opinions  and  desires,  and  an  apparent 
agreement  is  readily  accepted.  Yet,  when  all  is  said,  and 
we  have  humbled  ourselves  to  the  earth,  the  truth  stands 
out  that  the  sciences  are  progressive ;  facts  have  been 
added  to  facts,  and  theories  have  grown  and  decayed  ac- 
cordingly ;  and  in  no  case  has  the  advance  been  more 
marked  in  recent  times  than  in  the  historical  sciences  that 
deal  with  the  earlier  stages  of  society. 

§  2.  The  Ideality  of  Economic  Utopias.  If,  as  shown  in 
the  last  section,  we  are  liable  to  reconstruct  the  past  by 
the  simple  plan  of  taking  away  from,  and  adding  to,  the 
present  conditions  of  society  how  much  more  liable  are  we 
to  this  danger  where  our  object  is  to  set  up  an  ideal  future. 
Accordingly  it  will  be  found  that  the  usual  method  of  con- 
structing a  Utopia  is  to  magnify  what  the  author  approves, 
and  to  destroy  what  he  disapproves  in  our  actual  social 
arrangements,  the  gaps  in  the  structure  being  filled  up 
and  the  additions  supplied  in  unison  with  the  central 
idea.  In  some  famous  cases  it  has  long  been  doubted 
whether  the  Utopia  was  intended  as  a  satire  upon  contem- 
poraries or  as  a  guide  to  posterity. 

At  first  sight  it  might  be  thought  that  since  Utopias  are 
1  Take,  for  example,  the  mathematical  theory  of  probability. 


426  PRINCIPLES   OF  POLITICAL   ECONOMY. 

made  so  easily  they  would  present  great  variety,  but  it  is 
a  truism  that  the  imagination  has  very  limited  powers  of 
construction  compared  with  nature ;  on  the  one  side,  we 
have  a  short  span  of  life  and  a  small  brain,  and  on  the 
other  eternity  and  the  universe.  On  the  surface,  indeed, 
Utopias  seem  abundantly  diverse,  but  when  we  examine 
them  carefully  we  find  many  points  of  agreement.  They 
are  naturally  vague,  indistinct,  shadowy,  and  if  reality  is 
sought  for  by  the  introduction  of  fictitious  persons,  the 
didactic  element  destroys  the  fiction;  the  princes,  magis- 
trates, and  guardians,  in  general,  are  less  real  than  Swift's 
Houhnhymns.  It  is  doubtful  if  any  Utopia  has  retained  its 
hold  on  the  public  beyond  its  day  and  generation,  that  is 
to  say,  beyond  the  time  when  the  satire,  conscious  or  un- 
conscious, has  lost  its  force  through  the  change  of  social 
conditions.  An  appeal  to  the  lending  libraries  would  give 
a  poor  return  even  for  Plato's  Republic,  and  Sir  Thomas 
More's  Utopia.  If  old  Utopias  are  read  at  all,  it  is  gener- 
ally as  part  of  the  literature,  or  of  the  history  of  philosophy, 
and  not  as  practical  guides  to  economic  reform. 

§  3.  Modern  Socialism  —  Exposition.  It  is  the  boast, 
however,  of  modern  socialists,  that  their  schemes  are  due, 
not  to  efforts  of  the  imagination,  but  to  the  careful  study 
of  history  and  the  observation  and  criticism  of  actual  con- 
ditions. They  base  their  doctrines  on  the  theory  of  evolu- 
tion, and  their  tone  is  rather  prophetic  than  didactic,  that 
is  to  say,  they  take  up  the  position  that  in  the  past  and 
present  of  social  arrangements  they  can  discover  certain 
tendencies  which  only  need  time  for  their  full  develop- 
ment into  the  socialism  which  they  regard  as  an  ideal. 
Socialism  of  this  kind  has  already  a  vast  literature,  and  it 
is  hazardous,  and  perhaps  unfair,  to  attempt  a  general  de- 
scription and  criticism ;  at  the  same  time  to  select  one  or 
two  particular  writers  would  be  arbitrary  and  out  of  har- 
mony with  the  proportions  of  the  present  work.  The 
brief  account  that  follows  must  be  taken  as  represent- 
ing the  impressions  formed,  in  the  manner  of  composite 


DISTRIBUTION.  427 

photographs,  from  a  survey  of  a  number  of  works  which 
are  usually  described  as  socialistic,  and  are  certainly 
modern. 

In  the  first  place,  then,  the  socialists  of  the  order  it  is 
now  intended  to  describe  maintain  that  the  development 
of  the  modern  industrial  system  has  resulted  in  the  con- 
centration of  capital  in  large  masses,  with  a  corresponding 
increase  in  the  power  of  capital  over  labour.  Next,  they 
insist  that  competition  leads  directly  and  indirectly  to  the 
exploitation  and  degradation  of  labour;  directly,  because 
the  competition  of  labourers  with  one  another  leads  them 
to  accept  '  necessary '  wages,  and  indirectly,  because  the 
competition  of  capitalists  with  one  another  causes  over- 
production, commercial  crises,  and  general  instability  of 
industry.  Further,  they  argue  that  the  inequalities  in  the 
distribution  of  wealth,  and  the  disproportionate  rewards 
given  to  the  various  contributors  to  the  social  well-being, 
are  due,  not  simply  to  the  privileges  and  spoliation  of  the 
past,  but  are  a  necessary  result  of  the  present  system  — 
the  system  of  capitalistic  production  is  "continuous  rob- 
bery." Accordingly,  it  would  be  of  no  avail  to  rectify  the 
survivals  of  past  evils,  to  make,  for  example,  an  equal 
distribution  of  the  various  existing  forms  of  wealth,  for 
unless  the  whole  system  resting  on  large  capitals-  and 
competition  were  destroyed,  these  evils  would  very  soon 
reappear.  The  central  idea  of  the  proposed  reform  or 
revolution  is  thus  to  make  the  state  the  sole  owner  of 
capital  —  that  is  to  say,  of  land  and  all  the  instruments  of 
production  —  and  in  place  of  competition  to  substitute 
organisation.  The  transition,  it  is  supposed,  will,  in  the 
course  of  time,  become  comparatively  easy,  because  when 
production  has  attained  a  certain  magnitude,  all  that  is 
necessary  will  be  to  appoint  official  managers  instead  of 
competing  entrepreneurs.  In  support  of  this  view,  the 
socialists  point  to  the  state  regulation  of  the  army  and 
navy,  of  railways  and  of  education,  and  to  the  continuous 
increase  in  the  industrial  functions  of  government.  In 


428  PRINCIPLES  OF  POLITICAL  ECONOMY. 

fact,  some  recent  writers  prefer  to  describe  their  socialism 
not  as  a  definite  and  particular  reconstruction  of  society 
but  as  a  tendency,  which  may  manifest  itself  in  a  multi- 
tude of  forms,  towards  the  increase  in  the  power  of  the 
state  in  the  control  of  industry. 

§  4.  Modern  Socialism  —  Criticism.  The  reader  of  the 
preceding  pages  will  readily  understand  that  in  my  view, 
socialism  of  this  kind  is  based  on  a  total  misconception  of 
history,  and  sets  up  an  ideal  with  which  I  can  have  no 
sympathy.  The  doctrine  which  Mill  regarded  as  his  most 
important  contribution  to  political  economy,  namely,  that 
the  distribution  of  wealth  depends  ultimately  on  popular 
opinion  and  that  the  various  schemes  of  communism  and 
socialism  cannot  be  truly  said  to  be  impracticable,  has,  in 
my  opinion,  been  mischievous,  both  in  theory  and  prac- 
tice; in  theory,  because  it  has  caused  the  great  results 
obtained  by  the  so-called  orthodox  economists,  such  as 
Adam  Smith  and  Ricardo,  to  be  neglected  or  undervalued, 
and  in  practice,  because  one  of  the  principal  supports  of 
individual  liberty  has  been  weakened.  The  younger  gen- 
eration of  economists  think  it  is  their  principal  business  to 
invent  and  justify  new  modes  of  governmental  interfer- 
ence, and  the  secondary  and  remote  effects  they  look  upon 
as  quantities  that  may  be  neglected.  They  take  much 
pleasure  in  expressing  the  sentiments  and  emotions  aroused 
in  their  minds  by  industrial  conflicts  and  the  contempla- 
tion of  the  submerged  tenth.  They  have  a  child-like 
faith  in  the  omnipotence  of  a  duly  reformed  Parliament, 
in  the  altruism  of  the  common  man,  and  in  the  virtue  of 
obedience.  On  these  points,  however,  I  have  to  confess 
myself  a  disciple  of  Adam  Smith,  who  believed  very  little 
in  senates,  and  less  in  those  who  profess  to  trade  for  the 
public  good  and  who,  in  his  praises  of  liberty,  has  had 
the  singular  honour  of  furnishing  mottoes  and  texts  to 
the  literature  of  Russian  anarchists. 

The  general  result  of  a  survey  of  the  economic  history 
of  progressive  societies  appears  to  be,  that  although  cer- 


DISTRIBUTION.  429 

tain  kinds  of  organisation  have  at  first  satisfied  some  real 
need  and  done  good  work,  none  have  shown  themselves 
capable  of  adaptation  to  varying  circumstances,  but  on  the 
contrary  by  keeping  to  the  letter  of  their  rules  and  taking 
advantage  of  their  powers,  for  the  selfish  purposes  of  the 
members,  they  have  become  worse  than  useless.  It  is 
hardly  too  much  to  say  that  the  great  agency  of  progress 
has  been  competition,  and  the  great  obstructive  the  debris 
of  old  organisations.  This  failure  of  organisation  and  con- 
trol from  above  is  so  marked,  and  is  seen  under  such  differ- 
ent circumstances,  that  it  seems  natural  to  seek  for  some 
very  general  explanation,  especially  if  we  are  to  apply  the 
teaching  of  history  to  our  own  times. 

Socialists  and  others  who  are  continually  calling  for  fresh 
functions  to  be  imposed  on  the  sti'.te,  or  the  municipalities, 
or  communities  within  the  state,  are  liable  to  make  two  dis- 
tinct mistakes  regarding  the  appeal  to  history.  In  the  first 
place,  they  exaggerate  the  benefits  derived  from  control, 
whilst  for  a  brief  period  an  institution  was  vigorous  and 
rational,  and  they  overlook  the  natural  decay ;  whilst  as 
regards  competition  and  individual  freedom  they  exagger- 
ate the  evil  results  and  minimise  the  good.  This  is  the 
first  error  —  an  error  of  fact  and  historical  perspective. 
The  second  is  to  suppose  that  granting  the  failure  of 
state  interference  in  the  past,  circumstances  at  present  are 
so  different,  and  the  ideas  of  regulation  to  be  applied  so 
much  more  just  and  beneficial,  that  the  history  of  the  past 
has  little  to  teach  even  in  the  way  of  warning.  But  many 
organisations  in  the  past  certainly  did  not  fail  for  want  of 
nobility  of  aim,  and  the  Church,  in  the  mediaeval  period, 
tried  to  enforce,  and  so  far  as  law  was  concerned,  did  en- 
force many  of  the  doctrines  which  it  is  the  aim  of  the 
socialists  of  our  day  to  establish.  Especially,  as  already 
shown,  did  the  church  insist  on  the  dignity,  the  moral 
discipline,  and  the  real  worth  of  labour.  It  refused  to 
allow  interest  in  any  shape  or  form  —  it  taught  that  time 
as  such  and  dead  capital  as  such  had  no  claim  to  reward. 


430  PRINCIPLES   OF  POLITICAL  ECONOMY. 

The  church,  actuated  by  the  same  lofty  conceptions,  struck 
also  at  every  form  of  speculation,  it  aimed  at  fixing  the 
just  price  of  goods,  and  at  preventing  the  middleman  from 
reaping  where  he  had  not  sown.  It  struck,  too,  at  the 
extravagance  of  the  rich,  and  by  its  agencies  immense 
sums  were  spent  upon  the  education  of  children,  and 
relieving  the  necessities  of  the  poor.  The  mediaeval 
church  has  never  received  the  due  reward  of  praise  for 
its  nobleness  of  purpose ;  the  evil  done  has  lingered  in  the 
memory,  but  the  good  has  been  forgotten.  There  can, 
however,  be  no  doubt,  that  for  genuine  enthusiasm  for 
humanity,  it  would  be  difficult  to  find  the  equals  of  the 
original  founders  of  the  great  orders  of  monks  and  friars. 
The  heart  of  the  world  has  recently  been  stirred  by  the 
record  of  the  life  of  Father  Damian ;  but  we  forget  that  in 
the  Middle  Ages  every  town  in  England  had  its  lepers,  and 
that  one  of  the  greatest  orders  of  friars — the  Franciscan 
—  was  especially  founded  to  succour  and  soothe  these 
miserable  outcasts.  There  is  no  finer  picture  in  history 
than  the  description  of  the  way  in  which  a  cultured  man, 
in  the  fulness  of  health  and  youth,  ate  from  the  same 
plate,  and  shared  in  every  detail  the  horrible  life  of  the 
meanest  lepers.  Most  emphatically  it  was  not  in  nobility 
pf  aim,  that  the  Christian  Socialism  of  the  Middle  Ages 
lailed,  and  our  modern  religion  of  humanity  will  have  to 
Acquire  warmer  feelings  and  wider  views  before  it  can  hope 
tio  arouse  in  its  disciples  any  resemblance  to  mediaeval 
enthusiasm. 

And  yet  the  mediaeval  church  was  a  gigantic  failure,  and, 
just  as  on  the  religious  side,  a  reformation  was  needed,  the 
essence  of  which  was  the  right  of  individual  judgment, 
so  also,  on  the  economic  side  a  similar  revolution  was 
inevitable — the  essence  of  which  also  was  the  freedom 
of  the  individual.  It  is  a  saddening  truth,  repeated  over 
and  over  again  in  history,  that  the  acquisition  of  wealth 
and  authority  by  any  society  has  generally  sufficed  to 
make  it  forget  its  original  duties  and  to  cause  to  spring 


DISTRIBUTION.  431 

up  all  those  evils  of  selfishness  and  inhumanity  which  it 
was  expressly  designed  to  combat.  Such  was  the  fate  of 
the  great  religious  societies  and  such  was  the  fate  of 
the  guilds  and  industrial  organisations. 

The  failure  of  control  in  so  many  forms,  and  in  so  many 
cases  with  such  splendid  regulative  ideas,  must  obviously 
be  due  to  some  very  general  causes. 

It  seems  impossible  to  increase  the  power  for  good  with- 
out, at  the  same  time,  increasing  the  opportunity  for  abus- 
ing that  power.  Authority  granted  for  one  purpose, 
endowments  and  property  accumulated  for  one  set  of 
ideas  are  used  superficially  and  in  appearance  only,  for 
the  original  design,  whilst  in  essence,  they  are  used  for 
the  selfish  aims  of  the  actual  representatives  for  the  time 
being.  Industrial  control  is  primarily  intended  to,  check 
the  results  of  selfish  human  nature,  but  it  must  work  by 
men,  and  enthusiasm  and  ruling  noble  ideas  cannot  be 
passed  on  like  wealth  and  power.  It  is  so  easy  to  strain 
the  letter,  and  so  difficult  to  keep  the  spirit  of  just  laws. 
Again,  not  only  are  the  agents  human  and  liable  to  abuse 
their  powers,  but  they  have  not  —  they  cannot  have  —  the 
knowledge  and  the  foresight  to  guide  the  development  of 
a  great  nation.  The  only  force  that  can  grapple  with  the 
infinities  of  ignorance  is  the  force  of  freedom  with  its 
infinite  variations  of  individual  and  circumstance.  Thus, 
negatively,  authority  has  failed  because  it  cannot  suppress 
the  selfish  tendencies,  and  freedom  has  succeeded,  because 
instead  of  aiming  at  suppression,  it  has  given  full  scope  to 
the  play  of  individual  effort.  Competition  of  individual 
with  individual  has  done  more  for  the  progress  of  society, 
than  all  the  authority  and  organisations  which  one  set  of 
human  beings  have  made  others  obey.  No  economist  ever 
stated  the  truth  better  than  the  poet :  — 

"  The  old  order  changeth,  giving  place  to  new, 
Lest  one  good  custom  should  corrupt  the  world." 

The  great  economic  forces  which  are  implied  in  competition 
have  not  only  destroyed  such  palpable  evils  as  serfdom 


432  PRINCIPLES  OF  POLITICAL  ECONOMY. 

and  class  distinction,  but  they  have  opened  up  the  ways 
for  development,  which,  with  the  best  of  intentions,  had 
been  closed  by  governments  and  religions.  I  repeat  that 
I  do  not  mean  to  assert  that  governments  and  societies 
have  no  industrial  functions,1  nor  did  Adam  Smith  nor 
any  of  the  great  economists  who  have  lauded  the  benefits 
of  freedom  and  exposed  the  weakness  of  governments. 
But  it  is  desirable  to  emphasise  most  that  which  is  most 
apt  to  be  forgotten,  and  in  these  days,  no  one  is  likely  to 
forget  that  the  state  and  trade-unions  and  co-operative 
societies  have  power  for  good.  The  factory  acts  which 
protect  children  against  the  criminal  carelessness  and  self- 
ishness of  parents  and  employers,  show  the  beneficial 
power  of  the  state ;  trade-unions  have  enabled  labour, 
in  many  cases,  to  make  a  just  bargain,  otherwise  impossi- 
ble, and  have  trained  their  members  to  a  sense  of  new 
responsibility ;  whilst  the  objection  most  frequently  made 
to  co-operative  societies  is,  that  they  are  not  numerous 
and  not  large  enough. 

But  whilst  we  allow  that  certain  forms  of  voluntary  or 
compulsory  organisation  may  be  beneficial,  we  must  not 
forget  that  freedom  of  action  and  freedom  of  movement 
are  the  essential  conditions  of  industrial  development. 

§  5.  Modern  Socialism  —  Special  Criticism.  It  is  a  com- 
mon answer  with  scientific  men  when  challenged  to 
expose  the  devices  of  the  spiritualists,  to  say  that  when 
the  spirits  reveal  anything  of  importance  they  will  be 
prepared  to  sacrifice  the  necessary  time.  The  economist 
might  well  be  excused  for  adopting  a  similar  attitude 
towards  the  protean  forms  of  state  socialism,  which  are 
manifestly  impracticable.  There  is,  however,  some  advan- 
tage to  be  derived  from  the  contrast  of  these  schemes  with 
the  present  system  of  society.  In  the  first  place,  it  is 
clear,  that  if  the  state  is  to  control  distribution,  it  must 
also  control  production ;  it  must  determine  the  kinds  of 
occupation,  the  hours  of  labour,  the  localities  for  work 

1  These  will  be  examined  in  Vol.  II.,  Bk.  V. 


DISTRIBUTION.  433 

and  residence,  and,  in  brief,  must  circulate  the  power  of 
its  authority  alike  through  the  main  arteries  and  the 
smallest  capillaries  of  industry.  How,  under  a  compli- 
cated system  of  division  of  labour,  such  a  degree  of  organ- 
isation could  be  obtained,  seems  absolutely  inconceivable. 
The  magnitude  of  the  change  is  perhaps  best  seen  from 
the  usual  proposal  to  abolish  the  use  of  money.  Let  any 
one  try  to  imagine  how  the  business  of  a  great  country  is 
to  be  carried  on  without  money  and  prices,  how  the  value 
to  the  society  of  various  species  of  labour  is  to  be  esti- 
mated, and  how  the  relative  utilities  of  consumable  com- 
modities and  transient  services  are  to  be  calculated,  and 
he  will  soon  discover  that  the  abolition  of  money  would 
logically  end  in  the  abolition  of  division  of  labour.  This 
prospect  throws  a  strong  light  on  the  claims  of  the  social- 
ists to  base  their  doctrines  on  the  tendencies  of  history  and 
the  actual  processes  of  evolution,  for  as  already  shown  in 
detail,  the  principal  characteristic  of  industrial  progress 
has  been  the  continuous  extension  of  the  use  of  money. 
In  reality,  however,  socialism  is  still  more  vitally  opposed 
to  historical  development,  since  it  aims  at  reversing  the 
broadest  principle  of  progress,  the  continuous  substitution, 
namely,  of  contract  for  status.  It  is  equally  false  in  its 
assumptions  as  to  the  present  relations  of  capital  and 
labour;  the  idea  of  the  tyranny  of  dead  capital  over 
living  labour  is  utterly  unreal ;  dead  capital  without  liv- 
ing capital  is  powerless,  and  living  capital  is  stored  in  the 
brains  and  hearts  of  men.  The  interest  pure  and  simple, 
apart  from  wages  of  superintendence,  on  the  dead  capital 
of  the  United  Kingdom  is  probably  less  than  one-third  of 
the  gross  annual  income,  and  most  of  it  is  due  to  labour 
in  the  past  of  a  highly  specialised  kind,  which  has  bene- 
fited society  to  a  much  greater  extent.1  The  notion  that 
the  modern  system  has  tended  to  make  one  very  large 
class  of  very  poor  and  one  very  small  class  of  very  rich,  is 

1  Consider,  for  example,  the  interest  afforded  by  railways,  banks,  and 
improvements  in  lands  and  buildings. 


434  PRINCIPLES  OF  POLITICAL  ECONOMY. 

the  reverse  of  the  truth.  It  is  in  countries  in  which  the 
principle  of  competition  is  carried  to  the  greatest  pitch, 
that  the  middle  class  is  relatively  greatest,  and  the  pro- 
portion of  skilled  to  the  unskilled  workmen  the  highest. 
Not  only,  however,  does  socialism  rest  upon  a  false  view 
of  past  and  present  conditions,  but  it  sets  up  an  ideal 
which  would  dwarf  the  minds  and  cripple  the  energies  of 
mankind.  The  principle  of  population  would  soon  assert 
itself,  and  because  an  objection  is  not  new,  it  does  not 
follow  that  it  is  not  valid.  Above  all,  the  liberty  of  the 
individual  would  be  stifled,  and  with  it,  self-reliance,  inde- 
pendence, and  enterprise.  State  socialism,  if  carried  out, 
could  only  end  in  state  pauperism,  and  the  best  critique 
on  the  so-called  historical  socialism  is  the  history  of  the 
English  Poor  Laws. 


INDEX. 


ABSOLUTE  ownership,  272. 

Abstinence,  100,  198,  388,  389,  393,  403. 

Access  to  mountains,  202,  263. 

Accumulation:  influence  of  climate 
on,  11 ;  effective  desire  of,  25  (cf. 
205-208);  in  United  Kingdom,  89, 
Book  I.  Ch.  XII.;  scope  for,  given 
by  capital-basis  of  private  property, 
242;  stimulus  of  freedom  of  bequest, 
253,  254;  acquisition  of  a  right  of 
separate,  360;  effects  of  rate  of  in- 
terest, 393,  394  (cf .  209,  210) ;  of  se- 
curity. 998. 

Acquisition,  labour  of,  68.  (See  also 
Appropriation.) 

Adoption :  in  Russian  family  commu- 
nity, L'74. 

Advantage,  meaning  of  term,  138,  141, 
142. 

Ap-nts  of  production,  33  seq.,  200,  229, 
•J-l,  403. 

Agricultural  Holdings  Act  (1883),  321, 

m. 

Agricultural :  labourers,  what  drives 
them  into  towns,  120;  condition  of 
English,  compared  with  French  peas- 
ant, 145;  systems,  Book  II.  Ch.  VI.; 
land  and  its  economic  rent,  404-409; 
produce,  causes  affecting  its  amount, 
417,418;  price,  418-420;  expenses  of 
production,  421. 

Agricultural  System,  140. 

Agriculture,  45 ;  Nature's  part  in,  67 ; 
importance  of,  71 ;    effect  of  exten-  | 
sion  of  market,  113,  Book  I.  Ch.  IX. ;  ; 
law  of  diminishing  return  in,  151;  i 
American,  161;    English,    168;    im- ! 
provements  and   inventions  in,  170, 
1T'_':  British,  2(10;  and  judicial  rents, 
317,  318 ;  apprenticeship  in,  363,  364 ; 
British,  417-123 ;  Irish,  41s. 

Africa,  69, 133;  tribes  of,  207. 

Alfred,  King,  45. 

Alienation,  freedom  of,  293,  294,  305. 


Allmends  of  Switzerland,  280. 

Allowance  system,  378. 

America:  agriculture  of,  161,  420;  de- 
mand for  gold  in,  419. 

American  economists,  172,  346. 

Amsterdam,  Bank  of,  392. 

Analytic  method,  268. 

Anarchists,  Russian,  428. 

Anderson,  19. 

Andrews,  Dr.,  289. 

Anglo-Saxons,  291,  292.  (See  also 
Saxons.) 

Anticipation  of  the  future,  243.  (See 
also  Discounting  the  future,  and 
Expectations.) 

Antiquity,  argument  from,  251. 

Appreciation  of  gold,  215,  419. 

Apprenticeship:   statute  of,   124,  360, 

361,  366-368;    system  of,  124,  360- 

362,  3(53-364,  370. 

Appropriation:    emphasised  in  distri- 
bution, 10;  mark  of  economic  utili- 
ties, 26, 27,  29 ;  of  natural  fruits,  33 ; 
of  ideas,  40,  46;    a  species  of  pro- 
duction, 44,  45;    labour  of,  93;    of 
land,  40^409. 

Arabian  influence  on  civilisation,  79. 
Argyll,  Duke  of,  45  N,  322,  370  N,  402  N, 

405  N. 

Aristotle,  37,  88,  390. 
Ashley,  Prof.,  41  N,  306  N. 
Asia  Minor,  (i!>. 
Asiatic  governments,  398. 
Atkinson,  E.,  101  x,  211. 
Austin,  L'^-J. 

Australian,  the  native,  206. 
Auxiliary  capital,  97;    specialisation 

of,  108;  and  division  of  labour,  111, 

112,  122,  153,  212. 

BABBAGK,  108,  122. 

Bacon:   idols  of  the  market-place,  5; 

"  fraternities  in  evil,"  365,  408. 
Bagehot,  103  x,  124, 125,  209. 


435 


436 


INDEX. 


Bain,  364  N. 

Baker,  Sir  Samuel,  207. 

Bancroft,  84. 

Bank  of  England,  419. 

Banking  organisation,  96,  201,  207, 
212. 

Barter,  64. 

Bastiat,  13,  14,  103,  109, 198,  332,  388. 

Beccaria,  236. 

Belgium,  423. 

Beneficium,  292. 

Beutham,  7,  24,  52,  198  N,  202  N,  203, 
205,  237 ;  on  security,  243-245 ;  criti- 
cism of  his  views  on  security,  245, 
246,  252,  267  N. 

Bequest,  230,  241,  Book  II.  Ch.  III. ; 
21)4,305. 

Beran,  118. 

Berkshire  bread-scale  (1795),  377. 

Bible,  the,  on  usury,  390. 

Biology  and  Political  Economy,  12. 

Black  Death  (1349),  147,  285,  303,  341, 
365. 

Blackstone,  44  N,  236  N,  309. 

Blood-relationship,  250, 251 ;  in  Russia, 
274;  in  West  Britain  and  Ireland, 
288. 

Bohm-Bawerk,  E.  von,  87  N,  88, 103  N, 
390. 

Bonar,  Dr.,  176,  177 N. 

Booth,  Charles,  189,  190  N. 

Brassey,  Mr.,  79. 

Brentano,  L.,  124  N,  127  N,  331  N,  352  N, 
360  N,  361  N,  362,  365  N,  367  N,  369  N, 
381. 

Brodrick,  305  N. 

Budget,  National,  199. 

Burton :  East  African  morality,  207. 

Business  management.  See  Manage- 
ment, also  Entrepreneur. 

CAIRD,  SIR  JAMES,  153  N,  157,  163, 
422. 

Cairnes:  Political  economy  a  moral 
science,  10;  wages-fund  theory,  340. 

Cannan,  E.,  152  N,  157  N,  159 N. 

Canon  law,  41,  88. 

Capital,  30;  a  requisite  of  production, 
33  seq.,  44,  200,  403;  historically 
prior  to  appropriation  of  land,  36; 
living,  37,  38 ;  mental  and  moral,  38, 
39 ;  growth  of,  66,  Book  I.  Ch.  VI. ; 
economy  of,  122,  123;  concentration 
of,  122-124,  129-131,  427,  433,  434; 
and  large  farms,  142,  143;  and  size 
of  farms,  147 ;  growth  of  (material), 
Book  I.  Ch.  XII. ;  profit  the  price 


paid  for  use  of,  229;  an  economic 
basis  of  private  property,  242,  24:5; 
includes  most  valuable  qualities  of 
land,  258;  interest  received  on,  ib.  ; 
in  wages-fund  theory,  340  seq. ;  ad- 
vantage in  bargaining,  390 ;  demo- 
cratic, 400;  landowners'  interest  in, 
application  of,  407,  408 ;  relations  of 
labour  and,  433. 

Capitalist,  profits  dependent  on  feel- 
ings of,  388. 

Capitation  tax  in  Russia,  276. 

Caste  system,  227. 

Cavour,  274. 

Cellini,  Benvenuto,  47  note  1. 

Celtic  crofters,  indolence  of,  79. 

Champion  and  several,  45,  278. 

Chance,  element  of,  in  profits,  400, 401. 
(See  also  Conjunctur.) 

Checks  to  population,  184  seq. 

Child,  Sir  J.,  124,  131,  331  N. 

Children :  employment  of,  120  N,  1'24, 
360,  370;  views  on  increase  of,  178, 
182,  183,  187,  188;  pauper,  189;  obli- 
gation to  support  parents,  190,  375. 

China,  79,  162,  185,  11(5. 

Chisholm,  G.  G.,  70 N,  116 N,  202 N. 

Christian  Fathers  and  usury,  390,  391. 

Christian  Socialism:  of  Middle  Ages, 
430. 

Christianity  and  self-interest,  82.  (See 
also  Church.) 

Church,  mediaeval:  and  the  economic 
basis  of  ideas,  41-43 ;  prohibits  inter- 
est, 87,  226;  condemnation  of  love 
of  gain,  206 ;  held  a  third  of  English 
land,  254,  269;  and  the  poor,  373, 
374;  nobility  of  aim,  429,  430. 

Circulating  capital,  96,  97. 

Civilisation,  36,  39,  79;  security,  con- 
tract and,  203-205;  and  inequalities 
of  distribution,  221 ;  money  the  guid- 
ing thread  to  its  history,  300. 

Civil  law:  influence  on  systems  of 
cultivation,  149,  150. 

Classification  of  labour,  108,  109,  122. 

Clerk  Maxwell,  28. 

Climate,  8;  a  constituent  in  national 
production,  70;  affects  systems  of 
cultivation,  147. 

Cloth  manufacture  in  England,  origin 
of,  114,  115. 

Co-aration,  35. 

Code,  Napoleon,  314. 

Collaterals  and  inheritance,  252. 

Collections  for  impotent  poor,  373  seq. 

Coloni,  83,  239;  and  villani,  286. 


INDEX. 


437 


Combination :  of  use,  in  natural  things, 
49,  50;  in  employment  of  persons, 
IL'S.  12'.»:  of  labour,  KM,  112;  modi- 
fies competition,  345,  351,  357. 

Comfort,  standard  of :  its  influence  on 
population,  190-194,  1!I5;  limitation 
of  bequest  and,  255;  and  "natural" 
rate  of  wages,  333-335;  and  mini- 
mum wages,  349-351. 

Comforts,  taxation  of,  <>T>. 

Commendation,  practice  of,  292. 

Commercial  treaties,  object  of  the 
earliest,  204. 

Commodities:  consumable,  199,  213, 
433;  labour  treated  like  other,  324, 
325,  342. 

Commons,  peculiar  rights  over,  273. 

Communications,  means  of,  improve- 
ments in,  125,  170,  183,  201. 

Communism,  428. 

Companies,  joint  stock,  131-137 ;  regu- 
lated, 132. 

Comparative  method,  19,  277-229,  230, 
236,  273,  279. 

Compensation  :  for  expropriation,  Book 
II.  Ch.  IV.;  for  improvements,  204, 
318-323;  for  risk,  396-399. 

Competition:  relation  of  political 
economy  to,  14,  233;  and  custom, 
Book  II.  Ch.  V. ;  in  determination 
of  wages,  324  ;  modifies  custom,  325 ; 
has  diminished  the  sphere  of  custom, 
331,  333,  335,  33(5,  340  seq.;  what  it 
implies,  345;  modified  by  combina- 
tion, law,  and  custom,  ib.,  348,  355, 
356,  guilds'  attempt  to  restrict,  364 ; 
and  equality  of  interest,  394,  395; 
tends  to  equalise  risks,  397 ;  and 
economic  rent,  409 ;  and  degradation 
of  labour,  427 ;  the  great  agency  of 
progress,  429-434. 

Concentration :  of  industry,  122-124 : 
of  labour  and  capital,  129-131;  of 
capital,  427. 

Conditions  of  work,  as  affecting  quan- 
tity of  labour,  76;  affected  by  law 
and  custom,  330,  331,  357. 

Condorcet,  176. 

Conflict  of  interests  between  labourer 
and  employer,  329-331,  332,  333. 

Con*unctur,  400,  414.  (See  also 
Chance.) 

Consumer's  rent,  57-60,  63-65. 

Consumption,  1,  9,  Book  I.  Ch.  III. ; 
immediate,  90,  398. 

Consumption-capital,  90,  91,  199,  211, 
215. 


Consuls,  their  constancy  of  yield,  395, 
396. 

Contract :  movement  from  status  to, 
38,  230,  300,  325;  socialists  would 
reverse  this,  433;  freedom  of,  230; 
as  a  basis  of  private  property,  240- 
242;  hostility  of  socialists  to,  242, 
243;  security  essential  to,  244,  245; 
a  means  to  an  end,  24(i:  the  true 
ideal  of  a  trades  union,  387. 

Contracts :  security  for  enforcement  of, 
203,  204 :  state  secures  fulfilment  of, 
225;  customary  land  tenures  have 
given  way  to,  226;  time  an  impor- 
tant element  in,  244;  relation  of  the 
law  to,  247;  for  the  hire  of  laud, 
Book  II.  Ch.  IX.;  for  labour,  357. 

Conventional  land  tenure  substituted 
for  customary,  312,  324. 

Co-operation,  104,  10(5,  112;  among 
peasant  proprietors,  142,  143,  145, 
227 ;  very  ancient,  288 ;  power  for 
good,  432. 

Coote,  28t!  N. 

Corn :  cost  of  production  of,  164 ; 
causes  affecting  its  price,  419,  420. 

Corn  Laws,  152,  343. 

Corporations:  powers  annulled,  226; 
the  ancient  family  a  corporation, 
251 ;  bequests  to,  should  be  limited, 
254,  269. 

Cost  of  labour,  328-331,  388,  420. 

Cost  of  production :  and  rent,  162, 163 ; 
absolute,  of  corn,  164;  applied  to 
wages  of  labour,  324,  333. 

Cottier,  rack-rents  in  Ireland,  315,  316. 

Coulanges,  De,  280  N. 

Country,  meaning  of  term,  338,  339. 

Cournot,  8,  19  N,  103  N. 

Craft-guilds,  362-365.  (See  also  Guilds.) 

Credit  institutions:  a  form  of  im- 
material wealth,  33;  produced  by 
labour,  ib.,-  its  extension  increases 
wealth,  200,  201. 

Crisis,  commercial,  134,  201,  266,  343. 

Crofters,  Scottish,  74,  145,  158,  320. 

Cultivation  of  land :  intensive  or  ex- 
tensive, 151,  KM),  161,  165,  166;  in 
common,  240,  273  seq.;  in  Russian 
mir,  278,  280,  281;  intensive,  407. 
(See  also  Improvements.) 

Currency :  debasement  of,  327 ;  changes 
in,  419. 

Custom,  142,  144,  221,  227,  228,  230, 
252,  253;  and  competition,  Book  II. 
Ch.  V. ;  and  village  communities, 
Book  II.  Ch.  VI. ;  money  the  prin- 


438 


INDEX. 


cipal  loosener  of,  300,   309;   wages 
depend  partly  on,  324,  325 ;  and  con- 
ditions of  work,  330,  356,  417. 
Customary  land  tenures,  312;  wages, 
324. 

DAMIEN,  Father,  430. 

Darwin  compared  with  Malthus,  177- 
179. 

Deductive  method,  18, 19. 

Deer  Forests,  262,  263. 

Defence  v.  Opulence,  115,  237. 

De  Foe,  205  N. 

Degradation  of  labour,  120,  121,  327, 
427. 

Demand :  for  commodities,  is  it  demand 
for  labour  ?  101-103  ;  the  mainspring 
of  industry,   102 ;    effect  of  an  in- 
crease on  division  of  labour,  113; 
and  margin  of  cultivation,  162 ;  ex-  j 
pressed  by  price,   ib.;    exceptional; 
conditions  of,  167 ;   and  supply,  ad-  j 
justmeut  of,  201 ;    as  conditions  of  , 
contract,  242 ;  as  determining  price 
of  labour,  324,  325,  342,  354,  355 ;  and  \ 
rent,    405,  406-407,    411 ;    effectual, 
398 ;  reciprocal,  347,  348,  396. 

Devas,  C.  S.,  51  N,  193,  194  N,  336  N. 

De  Witt,  200. 

Dexterity  and  division  of  labour,  108, 
112,  122. 

Diminishing:  return,  108;  law  of, 
Book  I.  Ch.  X. ;  utility,  law  of,  54, 
61. 

Disadvantages  of  division  of  labour, 
117-121. 

Discounting  the  future,  205.  (See  also 
Anticipation  and  Expectation.) 

Disintegration :  of  family,  a  feature  of 
economic  progress,  251 ;  of  Russian 
"great  family,"  274,  359,  360;  of 
custom  in  England,  284,  285,  289. 

Distance  economically  a  species  of 
inferiority,  161. 

Distress,  law  of,  418. 

Distribution :  appropriation  important 
in,  10,  26;  from  economic  stand- 
point, 14 ;  laws  of,  partly  of  human 
institution,  17,  220  seq.;  what  is 
capital  in,  92;  large  and  small 
farming  and,  138,  142 ;  and  growth 
of  capital,  208,  Book  II.  Ch.  I. ;  j 
competition,  custom,  and,  268-271 ;  j 
development  of  exchange  as  chief 
agency  in,  415.  (See  also  Inequali- 
ties.) 

Distributive  justice,  224. 


Disturbance,  compensation  for,  319. 
Disutility,  8,  53,  56,  61,  74,  75,  320,  388. 
Division  of  labour,  Book  I.  Ch.  VII. ; 

tends  to  production  on  large  scale, 

122;  implies  economy  of  labour,  ib.; 

involves  division  of  capital,  106, 1^-' ; 

gives  increasing  return,  172 ;  private 

property    and,    240-244;    socialism 

and,  433. 

Division  of  use,  49. 
Domesday:    Book,  35,  296;    Studies, 

36  N,  282  N  ;  Survey,  36,  107,  213. 
Dornoch,  68  N. 
Dose  of  capital  and  labour,  155,  157, 

407,  409. 

Dowell,  S.,  214  N. 
Dry  bargain,  87,  88,  390. 
Duration  of  power  to  labour,  76,  77. 
Dynamical  forms  of  law  of  diminishing 

and  of  increasing  return,  152,  153, 

167. 

EARNINGS,  opportunities  for  extra, 
327,  328. 

East  India  Company,  133,  134. 

Economic:  advantages  of  private 
property  in  land,  259-262;  bases  of 
private  property,  Book  II.  Ch.  II. ; 
conception  of  wealth,  6  seq.;  distri- 
bution, 231-234;  expenditure,  •_'.;•_': 
evolution,  its  goal,  289;  history,  13, 
19,  20,  228,  236;  laws,  14-18;  man, 
12 ;  methods,  18-20 ;  motives  not 
purely  hedonistic,  24  ;  nor  of  lowest 
rank,  25;  phenomena  not  isolated 
in  reality  but  capable  of  separate 
study,  13,  14,  249,  250,  264,  298; 
stimulus,  freedom  of  bequest  as 
an,  253;  system  mediaeval,  114-115, 
116-117;  utility,  26-31,  32. 

Economics,  elements  of,  should  be 
taught  in  elementary  schools,  192, 
193. 

Economistes,  the  French,  67. 

Economists:  American,  172,  346 ;  Eng- 
lish, 3,  14,  172 ;  the  younger  genera- 
tion of,  428. 

Economy:  of  labour  and  capital,  122, 
123;  meaning  of  term.  2:'>2. 

Eden,  Sir  F.  M.,  77,  360  N,  366,  372  N 
seq. 

Education,  191-193,  194;  endowments 
for,  254. 

Edward  I.,  297. 

Edward  III.,  114. 

Edward  VI.,  374,  382. 

Effectual  demand,  398. 


INDEX. 


439 


Efficiency  of  labour,  74,  75,  78  seq.,  11(5, 
156  seq.;  affected  by  distribution, 
81,  219,  239;  overcrowding  and,  263; 
and  real  cost,  328,  330,  346,  389. 

Egypt.  79. 

Eight  hours  day,  77. 

Elasticity:  of  principle  of  compensa- 
tion, 266;  of  standard  of  comfort, 
191,  195,  349-351. 

Electricity  displacing  steam  as  a  mo- 
tive power,  130. 

Elizabeth,  134;  (Act  of  1G01),  372  seq. 

Ellison,  154  x. 

Elton,  2!>4x. 

Emigration :  effect  on  population,  186 ; 
variations  in  treatment  of,  226; 
judicial  rents  and,  31(>,  418,  421. 

Emphasis,  adjustment  of,  10,  329. 

Empirical :  skill  of  small  masters,  130 ; 
of  small  farmers,  144 ;  rules,  econo- 
mics reduced  to  a  collection  of, 
230. 

Employment,  regularity  of,  328. 

Employments,  separation  of,  106-108. 

Employers  and  employed,  relations  of, 
in  making  contracts,  357,  383. 

Enclosure  Acts,  282. 

Enclosures,  45, 143 ;  absence  in  Russian 
mi.:  -J7s. 

Km-in-htpiedia  Britannica,  87  x,  253x, 
330  ir. 

England :  natural  advantages  of,  67 ; 
supremacy  of,  79;  pre-Roman  and 
present,  93;  economic  condition  of, 
120;  industrial  transformation  of, 
12.".,  12i!:  diversion  of  capital  from 
agriculture  to  manufactures,  140, 
151 ;  industrial  conditions,  since 
1770,  153,  154;  corn  grown  since 
prehistoric  times,  155 :  changes  in 
methods  of  cultivation,  1G2;  wheat 
production,  163;  parochial  educa- 
tion in,  191 ;  prosperity  and  security, 
202;  democratic  capital,  20!);  varia- 
tions in  distribution,  226 :  the  farmer 
cultivator,  245:  mediaeval  church 
land,  254;  competition  modified  in, 
2<  !S;  rights  over  commons,  273; 
village  communities,  281-283,  285- 
L's^;  disintegration  of  customs,  284, 
285,  28!);  feudalism,  291  seq. ;  in  14th 
century.  ."03:  laud  transfer  simpli- 
fied, :'-07.  "09. 

English:  economists.  3.  14.  172,  428; 
race,  78,  79 :  Poor  Law,  99,  178,  179, 
371-381;  political  economy  and  law 
of  diminishing  return.  152;  progress 


of  manufactures,  153 ;  production  of 
wheat,  155,  168;  fall  in  price  of 
wool,  16(5 ;  settlements  in  America, 
122 :  industry  and  contract,  238,  272, 
279. 

Entail:  law  of,  14!),  254;  origin  of, 
295,  305,  309. 

Enterprise,  freedom  of,  269;  fettered 
by  the  mir,  278;  has  diminished  the 
sphere  of  custom,  331,  418. 

Entrepreneur,  the,  127,  128,  427. 

Epicurean  principles,  252. 

Equality:  of  distribution,  233;  doc- 
trine of  wages,  334-336 ;  tendency  of 
profits  to,  38!),  393-395. 

Erskiue  May,  Sir,  133  N. 

Ethics  and  political  economy,  14  seq., 
24,  231,  233,  2:U,  237,  252,  38!),  403. 

Exchange:  value  important  in,  26;  a 
kind  of  production,  46,  92,  113; 
and  distribution,  229-231 ;  of  services, 
229,  230;  importance  of  money  to, 
300,  301 ;  principal  agent  in  distribu- 
tion, 415. 

Exchangeable  value :  is  attribute  of 
wealth,  6,  8;  of  labour,  325.  (See 
also  Value.) 

Expectation,  243,  244,  252.  (See  also 
Anticipation  and  Discounting.) 

Expenses  of  production,  421. 

Expropriation,  compensation  for,  Book 
II.  Ch.  IV. 

Extent  of  market,  division  of  labour 
limited  by,  112,  113. 

Extractive  industries,  45, 168. 

Evolution :  and  political  economy,  11, 
146,  251 ;  and  socialist  doctrines, 
426,  433;  of  the  mir,  273  seq. 

F'S,  THE  THREE,  322. 

Facilities  for  investment,  208,  209. 

Factories,  122,  124. 

Factory  Acts,  369-371. 

Factory  system :  one  aspect  of  great 
industry  system,  125,  126;  legisla- 
tion, 237;  and  mediaeval  building 
trades,  127 ;  and  apprenticeship,  361, 
370. 

Fair-rent,  280,  311,  315-318,  319  seq., 
417-423. 

Family :  in  ancient  times  the  real  unit 
of  society,  a  corporation,  251,  294; 
in  Russia,  274.  (See  also  Disintegra- 
tion.) 

Farming,  large  and  small,  Book  I.  Ch. 
IX. 

Faucher,  Julius,  279N. 


440 


INDEX. 


Perm,  402. 

Fertility  of  soil,  71. 

Feudal:  law,  its  remnants  abolished 
in  Ireland,  319;  system,  269,  273, 
275,  276,  Book  II.  Ch.  VII. ;  obliga- 
tions gradually  abolished,  312. 

Field,  J.  D.,  279N,  280N. 

Fielden,  371 N. 

Fielding,  Henry,  376  N. 

Final  utility,  51, 53  seq.,  62.  (See  also 
Marginal.) 

Fixed  Capital,  96,  97. 

Fixity  of  Tenure,  280,  319  seq. 

Flanders,  rack-rent  in,  311. 

Flemings,  colonies  planted  in  England, 
114. 

Floating  Capital,  97. 

Food  supply :  increase  of  and  popula- 
tion, 180-184,  194, 195 ;  accumulation 
of,  210,  211;  nation  should  avoid 
cheapest,  196,  352;  price  of,  and 
wages,  350,  351. 

Foreign  trade :  and  division  of  labour, 
113,  134;  and  security,  204. 

Fourier,  73. 

Fowle,  372  N. 

France :  peasant  proprietors,  143 
seq.;  subdivision  of  land,  145,  147; 
changes  in  methods  of  cultivation, 
162 ;  population  of,  181 ;  compulsory 
division  of  land,  227,  309 ;  power  of 
bequest,  254,  255 ;  restraint  of  popu- 
lation, 255;  rent,  423. 

Franciscan  Friars,  430. 

Frazer,  J.  G.,  270 N. 

Freedom:  maximum,  16,  38,233,255; 
v.  organisation,  428-434 ;  of  bequest, 
252,  253 ;  limitations  to,  254,  255 ;  of 
alienation,  293,  294;  industrial  and 
modern  land-ownership,  Book  II. 
Ch.  VIII. ;  growth  of,  357  seq.,  415, 
416.  (See  also  Contract.) 

Freeholder  protected  by  Magna  Charta, 
202. 

Free-labour,  displaces  slavery  and  serf- 
dom, 226. 

Free  sale  of  tenant  right,  319  seq. 

French  land  law :  its  free  trade  princi- 
ple, 314,  315 ;  and  improvements,  318. 

Fund,  savings,  200. 

GARNIER,  Mr.,  289N,  306N. 
Gaskell,  Dr.,  370 N. 
Gavel-kind  in  Kent,  294 N. 
General  level  of  prices,  see  Prices. 
General  wages,  normal  rate  of,  336- 
339.     (See  also  Wages.) 


Geological  formation,  71. 

Germany,  303,  311. 

Giffen,  R.,  47  note  2,  89,  120N,  210N, 
214,  215,  216. 

Gift  inter  vivos,  a  form  of  contract,  L'41 . 

Gifts  of  nature  :  limited  and  unlimited, 
68,  69,  92,  93 ;  appropriation  and  ex- 
change of,  70;  are  they  capital? 
92-94 ;  and  results  of  labour,  92,  93. 

Gilbert's  Act  (1782),  376. 

Gilman,  N.,  83 N. 

Godwin,  175. 

Gold,  appreciation  of,  215,  419. 

Gomme,  162  N. 

Goschen,  G.  J.,  40  N. 

Government:  Bentham  on,  246 ;  inter- 
ference, relation  of  Political  Econ- 
omy to,  14 ;  reaction  in  favour  of,  16, 
224-226,  231,  253;  and  judical  rents, 
315-318 ;  tends  relatively  to  decrease, 
415,  427  seq. 

Great  Britain :  relative  decrease  of 
agricultural  population,  141 ;  at- 
tempt to  establish  small  farms  criti- 
cised, 146;  tendency  of  Acts  of 
Parliament,  ib. ;  purchase  of  small 
farms  in,  149,  209,  210,  260,  310. 

"  Great  Family  "  in  Russia,  274. 

Greece,  79,  311,  358. 

Green,  J.  R.,  203 N. 

Grenoble,  glove  industry  of,  130. 

Grierson,  135  N. 

Gross,  Dr.,  362 N. 

Gross:  produce,  130-141;  profit,  388 
seq. ;  income,  433. 

Grote,  G.,  392 N. 

Ground  rent,  410,  415  N. 

Guardians  of  the  poor,  376. 

Guilds :  rise  and  decay  of,  11 ;  powers 
annulled  and  transferred,  226,  227, 
269 ;  craft,  362-365 ;  and  trade  unions, 
386 ;  decay  of,  431. 

Gulliver's  Travels,  337  N. 

HABIT,  269,  324. 

Happiness,  maximum,  16,  24,  232,  233. 

Harmony :  of  interests  of  labourer  and 

employer,    331-333;    in    nature    of 

profits,  388,  389. 
Hedonistic  Calculus,  52. 
Hedonometer,  53,  62. 
Held,  A.,  31  N,  93. 
Henry  VII.,  114. 
Henry  VIII.    forbids    exportation    of 

horses  and  metals,  115. 
Hereditary  trades  in  India,  280. 
Hewins,  366N. 


INDEX. 


441 


Hire  of  land,  contracts  for,  Book  II. 

Ch.  IX. 
Historical  method,  19,226-229, 230, 236, 

L'7:;,  279,  281, .371  seq.,  389-3112. 
History,  economic,  111,  20,  '-"JS;  origins 

of,  236 ;  and  economic  Utopias,  Book 

II.  Ch.  XV. 
Hoblu-s.  2:«>. 
Holland :     natural    advantages    and 

wealth  of,  66,  71 ;    pauper  colonies 

of,  84 ;  influence  of  foreign  trade  on 

growth  of  wealth,  200,  209. 
Hours  of  labour,  77,  120. 
Houses,   accumulation  of   capital  in, 

211. 

Howell,  361  N,  382  N,  383  N,  385  N,  386. 
Human  element  in  wealth,  11,  23,  30. 
Hungary,  245. 
Hunter,  Sir  W.,  196  N. 
Hypothec,  law  of,  418. 

IOK.VL  economic  distribution,  231-234. 

Ideas,  production,  appropriation,  and 
exchange  of,  40-44,  4»i. 

Imagination  and  economic  Utopias, 
4 '-'6  seq. 

Immaterial  utilities:  are  they  Capital? 
!C>,  96,  112 ;  localisation  of,  117 ;  pro- 
duction on  a  large  scale,  123. 

Immigration  to  the  towns,  421. 

Impotent  poor,  372  seq. 

Improvements:  in  agriculture,  69,  170, 
172,  418;  in  methods  of  production, 
lf>2  seq.,  155,  156  seq.,  170;  in  means 
of  communication,  170,  172,  421;  in 
land,  258,  260,  261,  311 ;  compensa- 
tion for,  318  seq. 

Improver,  should  owner  be  ?  257,  258. 

Inappropriate  conceptions,  12,  16,  325. 

Income :  and  capital,  195) ;  various 
species  of,  treated  as  cases  of  value 
or  price,  229. 

Income-tax  assessments  as  basis  of  es- 
timate of  natural  wealth,  214,  215. 

Inconvertible  notes,  327. 

Increasing  return,  law  of,  151, 153, 154, 
157,  159,  171-174. 

Index  numbers  presuppose  the  opera- 
tion of  general  causes,  337,  338. 

Individual  enterprise,  fettered  by  the 
Hii'r,  278.  (See  also  Freedom.) 

Individualism,  Socialism  and,  24,  408- 
4.'U. 

Inductive  method,  19,  174,  175,  177, 
178,  184,  185,  221. 

Industrial:  anarchy,  16;  revolution, 
124,  153;  the  modern  system,  r_".t. 


201 ;  systems,  226,  227 ;  freedom  and 
modern  land-ownership,  Book  II. 
Ch.  VIII. ;  groups,  348. 

Industries:  protection  to  native,  114- 
116;  displacement  of,  117. 

Industry:  is  limited  by  Capital,  98- 
100;  localisation  of,  114-117;  con- 
centration of,  122-124:  progress  of 
English,  122;  contrast  between  agri- 
culture and  manufactures,  151 ;  mas- 
ter-spring of,  188;  security  essential, 
203  seq.;  English,  238;  freedom  of 
contract  its  life-blood,  241 ;  incen- 
tives to,  lessened  by  limitation  of 
power  of  bequest,  254 ;  land  not  the 
result  of,  256,  257 ;  but  its  most  valu- 
able qualities  are,  257. 

India,  99;  trade  with,  133;  congested 
areas,  195;  village  communities,  279, 
280,  288 ;  usury  in,  342. 

Indians  on  the  St.  Lawrence,  205. 

Inequalities  in  distribution  of  wealth, 
221,  242,  332;  the  result  of  free- 
dom, 255;  and  of  habit,  269;  social- 
ist view  of  existing  regime,  427. 

Infanticide  may  lead  to  increase  of 
population,  185. 

"Inferior"  land:  varies  with  agricul- 
tural regime,  161-163;  when  rent 
means,  163,  169. 

Inheritance,  230,  241,  Book  II.  Ch. 
III.,  294;  feudal,  295. 

Insurance :  against  old  age,  193 ;  socie- 
ties, 201 ;  rates  of,  effect  of  low  rate 
of  interest,  210;  against  risk,  393, 
396-399. 

Intellectual  ability  and  efficiency  of 
labour,  80. 

Intensive  and  extensive,  see  Cultiva- 
tion. 

Intensity  of  labour,  75,  326,  331. 

Intention  of  owner,  Capital  or  not,  94. 

Interdependence  of  production  and  dis- 
tribution, 81  seq.,  219,  238. 

Interest:  change  in  public  opinion  on, 
87,  226 ;  effects  of  rate  of,  on  accu- 
mulation, 209,  210,  393,  394;  nega- 
tive rate,  211,  392;  rate  determined 
by  contract,  242;  received  on  all 
kinds  of  capital,  258;  owner  does 
nothing,  ib. ;  tends  to  be  separated 
from  wages  and  profits,  ib. ;  low  after 
a  crisis,  343  ;  pure,  389,  396 ;  loan 
interest  and  usury,  389-392;  loan 
and  profit,  392,  393;  mini  mum  rate 
of,  393,  394 ;  in  what  sense  tendency 
to  equality,  394,  395;  distinct  from 


442 


INDEX. 


rent,  403;  and  profits,  408;  and 
wages  of  superintendence,  433. 

Interests :  conflict  of,  between  labourer 
and  employer,  329-331, 332,  333 ;  har- 
mony of,  331-333. 

Intestacy,  251-253,  294. 

Invention :  through  division  of  labour, 
109-111 ;  increments  of,  ib.,  121 ;  fore- 
cast of  future,  173. 

Ireland:  undue  sub-division  of  land, 
145;  effect  of  land  legislation,  150; 
congested  areas,  195;  potato  famine, 
196 ;  land  improvement,  260 ;  tenant 
right  extended,  261;  run-rig  system, 
273,  312;  its  logical  outcome,  323; 
Adam  Smith  and  union  with  Great 
Britain,  323;  agriculture,  418,  422. 

Italy,  69,  79. 

JACQUERIE,  the,  in  France  (1358),  381, 

382. 

Jamieson,  G.  Auldjo,  308. 
Japan,  99. 

Java,  village  communities  in,  280. 
Jevons :  final  and  total  utility,  7 ;  utility 

a  balance  of  pleasure  and  pain,  25; 

calculus  of  utility,  49, 52 ;  Marshall's 

criticism  of,  65;  labour  painful,  72  y ; 

state  railways,  135  s ;  index  numbers, 

333  y. 
Jews :  London  money  market  traced  to, 

117;  in  Russia,  209,  260,  311,  390  N. 

(See  also  Usury.) 
Job,  213. 
John,  King,  301. 

Johnson,  Dr., on  primogeniture,  254, 255. 
Joint  products,  and  law  of  diminishing 

returns,  166. 
Joint-stock    banks,    123;    companies, 

131-137. 

Judicial  rents,  315-318,  320. 
Jurisprudence:   a  social  science,  12; 

conceptions  of  analytical,  223. 
Just:  expectations,  252;  price,  430. 
Justice :  interpretation  of,  252 ;  natural, 

256,  263 ;  an  end  in  itself,  266. 
Justices  and  relief  of  poor,  376  seq. 
Justinian,  359. 

KAIMES,  Lord,  129  N. 

K;il i n.  the  Swedish  traveller,  161  N. 

Kay,  Joseph,  309  v. 

Keynes,  Dr.,  20x,  26  N. 

Kinds  of  produce.  139,  146,  147,  165 

seq.,  418,  420. 
Kleinwachter,  46  N. 
Knies,  87  N,  88,  89,  91. 


LABOUR  :  is  it  essential  to  wealth,  C,  7 ; 
M'Culloch's  definition  of,  8;  sub- 
jective point  of  view,  ib.;  quantity 
of,  ib.;  disutility,  ib. ;  a  mark  of 
economic  utilities,  :_'<>,  27,  '_'!';  a 
requisite  of  production,  33:  quantity 
of,  (52;  organisation  of,  6i>,  !'4,  117; 
nature  aids,  67,  68;  of  occupation, 
68,  93,  Book  I.  Ch.  V. ;  is  all  capital 
the  result  of,  <J2-94 ;  division  of,  Book 
I.  Ch.  VII.;  economy  of,  1±_>,  123, 
153;  condition  of,  and  small  farms, 
148;  its  share  of  the  net  produce, 
199;  free,  226;  wages  the  price  paid 
for  use  of,  229,  o_'4,  :;•_'."> :  as  a  basis  of 
private  property,  238-240:  only  de- 
rivative qualities  of  land  the  result 
of,  256,  257;  regarded  as  a  commod- 
ity, 324,  325,  342;  wages  the  real 
reward  of,  325-327 ;  real  cost  of,  328, 
329,  331,  388;  quantity  and  condi- 
tions of,  affected  by  law  and  cus- 
tom, 330,  331,  357 ;  wages  the  net  re- 
ward of,  357;  relations  of  employers 
and  employed  in  contracting  for, 
357,  383;  profits  as  dependent  on 
cost  of,  388,  389,  403.  (See  also 
Degradation  and  Efficiency.) 

Labourer,  modern,  the  true  counter- 
part of  medifeval  slave,  258. 

Labourer's  rent,  351. 
I  Labourers,  statutes  of,  365,  366. 

Labour-rate,  system  of  outdoor  relief, 
378. 

Labour-saving  machinery,  mental  ef- 
fect of,  120. 

Laisser-faire,  225,  226. 

Lambert,  362  N,  363. 

Land:  as  agent  of  production,  33,  200, 
229,  234,  403;  immediate  effect  of 
agricultural  improvements,  69;  in- 
cluded in  national  capital,  93 ;  capital 
value  of,  ib.,  138  seq.;  peculiar 
nature  of  property  in,  141,  142:  ad- 
vantages of  large  farms  as  regards, 
142;  unduly  subdivided,  145:  and 
law  of,  diminishing  return,  Book  I. 
Ch.  V.;  private  property  in,  its 
economic  justification,  Book  II.  Ch. 
IV.;  evolution  of  ownership  and  oc- 
cupation in,  Book  II.  Chs.  VI.,  Vlf., 
VIII.,  see  also  Book  II.  Ch.  IV. 
(Contracts  for  the  Hire  of  Land) ; 
economic  peculiarities  of,  403-405, 
409;  economic  rent  of  agricultural. 
404-409;  superior.  405:  differential 
advantage  gives  rise  to  rent,  ib. ;  all 


INDEX. 


443 


may  yield  rent,  40T> ;  monopoly  of, 
409,  410;  alternative  uses  of,  411; 
rent  paid  for  original  qualities  of, 
41.'!.  (See  also  Cultivators,  Im- 
provements, Tenure,  Transfer.) 

Land-hunger,  315,  .".lii. 

Land-laws,  changes  in,  and  the  decay 
of  feudalism,  :305,  :MM;. 

Land-lord:  tenant  system,  its  advan- 
tages, 259-262,  310  fi-q.,  418;  French 
law  as  to,  314;  are  they  on  an  equal 
footing,  315  *•«'</.,•  the  large  cultivat- 
ing, his  possible  gain,  407, 408;  a  bad 
farmer,  418;  his  hypothec,  418. 

Large  estates,  advantages  of,  309-312; 
and  small  farming,  Book  I.  Ch.  IX. ; 
system  of  industry,  see  Production 
on  a  large  scale. 

Latifnndia,  141. 

Latimer,  141. 

Lauderdale,  Lord,  104. 

Laveleye,  E.  de,  279  N,  280  N. 

Law,  John,  40 N,  (16. 

Law:  of  diminishing  return,  17,  Book 
I.  Ch.  X.,  404  seq.;  of  diminishing 
utility,  54,  til ;  of  increasing  return, 
151,  U3,  154,  157,  159,  171-174. 

Laws  of  Political  Economy,  see  Econo- 
mic Laws. 

Lawsof  Production  and  of  Distribution 
compared,  17,  220  seq. 

Laws  of  Settlement,  366,  3(57,  375. 

Laws,  sumptuary,  366,  367. 

I.t-iisps,  204,  90S,  809,  417  seq.,  see  also 
Book  II.  Ch.  IX.  (Contracts  for  the 
Hire  of  Land). 

Lefevre,  Shaw-,  310  x,  323  N. 

Legal  aspects  of  private  property, 
235,  236. 

Legislation,  influence  of,  on  systems  of 
cultivation,  149. 

Lemontez,  118. 

Levi,  Leone,  131  N,  368  N. 

Liberty,  16,  24,  23,  233,  428  seq.  (See 
also  Freedom.) 

"  Life  force "  as  unit  of  labour,  74, 
77. 

Limited  liability,  principle  of,  131, 135, 
136. 

List,  39,  95. 

Localisation  of  industry,  129,  144-147. 

Locke,  John,  67. 

Lombards,  117. 

London,  improvements  in,  110,  111. 

MACAULAT,  327. 

Machinery :  effects  of,  on  wages,  97 ; 


division  of    labour    and,   111,   112; 
labour-saving,  120. 

M'Culloch,  S,  Itix,  38  x,  133,  152 N, 
333  X,  334,  335  x,  351  N,  372  N,  412  N, 
610  N. 

Mackay,  J.,  372  x. 
M'Neill,  Sir  John,  84. 
Marpherson,  19,  lllN,  200 N. 
Madox,   283  x,    29(3,  297  x,   298  N,   301, 
304  N,  390  N,  402. 

Magna  Charta,  security  the  leading 
principle  of,  202,  304  x. 

Maine,  Sir  H.,  27  N,  39,  41  x,  44  x, 
222  x,  223,  2:;o,  2: St.  x,  247,  249,  251  N, 
279,  2S1,  294  X,  357,  358,  359  X,  417. 

Maltlms,  Book  I.  Ch.  XI.  //«*.>•///<. 

Management:  of  production,  124,  128; 
joint-stock,  134,  135;  wages  of,  389. 

Mandeville,  105  x. 

Manor,  mediaeval,  68,  69,  107,  275,  276, 
282  seq. 

Manufactures,  66,  67,  124  seq.,  151, 
153,  154,  172,  211,  379,  380,  450,  456. 

Manufacturing,  wider  than  factory 
system,  45* >. 

Margin  of  cultivation :  recession  of, 
69 ;  land  on,  155,  406 ;  extension  of, 
161,  162. 

Marginal :  utility,  51,  53  seq.,  55-57,  63 
seq.;  land,  155;  dose,  155,  164;  re- 
turn, 155,  164. 

Mark,  the,  286,  287. 

Market,  extent  of,  112, 113. 

Marriage,  180;  early,  182,  185,  193. 

Marsh,  69  N. 

Marshall,  Prof.  Alfred,  25  x,  26  x,  50 N, 
63,  85,  94,  95  N,  103  N,  108,  114  N,  129, 
155  x,  172,  229  N,  325  x,  331,  333  N, 
384  x,  390,  399  N,  411,  414. 

Marshall's  Treatise  on  Landed  Prop- 
erty (1804),  281. 

Marx,  Karl,  103  x,  105  x,  129,  198,  370, 
389  N. 

Masters  and  Servants,  legislation  with 
respect  to,  365-369. 

Material  Capital :  methods  of  estimat- 
ing its  increase,  213-216. 

Mathematics  in  Political  Economy,  8, 
19. 

Manrer,  Von,  286. 

Mediaeval  Period:  economic  progress 
in,  107,  108;  economic  system,  114- 
117;  custom  in,  269;  English  towns 
in,  295. 

Mental:  Capital,  38,  39,  95;  evils  of 
division  of  labour,  118-120. 

Mercantile  System,  5. 


444 


INDEX. 


Metayer,  89,  203,  239,  303. 

Methods:  of  Political  Economy,  18-20; 
of  estimating  growth  of  Capital, 
213-216. 

Middle  Ages:  people  governed  by  cus- 
tom, 269;  effects  of  primogeniture 
modified  by  custom,  294;  exclusive- 
ness  of  towns,  295 ;  Christian  Social- 
ism, 430. 

Migration,  effects  of  its  abandonment 
in  Russia,  276. 

Military  tenures,  291-295. 

Mill,  J.  S.  :  what  is  wealth,  5,  6 ; 
value,  8,  10,  17;  liberty,  24,  25; 
economic  utility,  29,  51 ;  measure 
of  value,  60;  labour  as  measuring 
utility,  61 ;  Nature's  part  in  produc- 
tion, 67,  77 ;  Capital  productive,  89, 
90,  91,  95,  96-97;  four  propositions 
on  Capital,  98-103,  100  w,  104,  122  N, 
140-141,  142,  151. 152  x,  154,  158,  160, 
164,  169,  170;  dread  of  population, 
180,  187,  188,  197 ;  security,  203,  205, 
207  N,  220-222,  223-226,  229-231,  235, 
238. 239 ;  on  inheritance,  250 ;  bequest, 
251,  252,  255;  property  in  land,  256- 
259;  prescription,  265;  competition 
and  custom,  269,  270;  wages  fund 
theory,  332,  339-341,  344,  346.  354, 
355;  analysis  of  profits,  388,  389; 
minimum  interest,  393, 395 ;  security, 
397 N;  machinery  of  distribution, 
415 ;  effect  of  his  views  on  distribu- 
tion, 428. 

Mineral  wealth,  66,  71. 

Mines,  rent  of,  410. 

Minimum :  wages,  349  seq. ;  tendency 
of  profits  to,  389 ;  rate  of  interest, 
393*69- 

Mir,  the  Russian,  273-279. 

Mitchell,  Sir  A.,  39  N,  78  N,  110  N,  178  N. 

Mobility :  of  labour,  121,  201,  345,  355 ; 
of  distribution,  225. 

Mohammedan  law,  279. 

Mommsen,  82,  209  N. 

Monasteries:  hospitality  of,  41,  42; 
dissolution  of  the,  374. 

Money,  28,  29;  measuring  growth  of 
wealth,  199,  212,  213;  variations 
iu  purchasing  power,  327 ;  factor  in 
economic  progress,  300-305. 

Monopoly:  of  regulated  companies, 
132;  of  East  India  Company,  133, 
134 ;  post-office,  135, 136, 203 ;  of  land, 
315,  316 ;  monopoly  rent,  409,  410. 

Monotony  of  work,  118-120. 

Montfort,  Simon  de,  114. 


Moore's  Life  of  Byron,  369  s. 

Moral :  sciences  include  Political 
Economy,  10;  individual  or  social, 
12;  ideals  not  economic  laws,  14; 
philosophy,  relation  of,  to  Political 
Economy,  24,  25,  52  x;  capital,  38, 
39;  activities  and  efficiency  of 
labour,  80,  81 ;  restraint,  181  seq.  ; 
reflections  of  Adam  Smith,  231,  •_'.!•_'. 

Morality,  productive  power,  39 ;  com- 
mon sense  and  sovereignty,  ±25: 
discussions  on,  231;  v.  Bentham's 
doctrine  of  security,  245,  24(5,  253, 
263, 264 ;  development  of  public,  2G5. 

•  Morcellement ,  14:2-145. 
More,  Sir  T.,  42(5. 
Morgan,  Osborue,  308. 

'Morier,  R.  B.  D.,  312  N. 
I  Morley,  John,  76. 

Mortgages,  evils  of,  209,  260,  311. 
!  Motive  power,  economy  of,  130. 

Motives:  economic,  24,  25;  which  in- 
duce people  to  save,  201  seq.  (See 
also  Self-interest.) 

Mountain  scenery,  access  to,  2(52,  263. 

Mulhall,  214. 

Muscovite  communities,  275  seq. 

NASSE,  Prof.,  281. 

Nation,  meaning  of  term,  338,  339. 

National:  production,  natural  con- 
stituents in,  66,  70  seq. ;  capital,  93; 
whether  subject  to  law  of  diminish- 
ing return  or  of  increasing  return, 
174 ;  increase  of  wealth,  213-216 ;  land 
the  most  important  item,  404. 

Natural:  liberty,  16,  232,  233,  387; 
theology  optimistic,  16,  332;  condi- 
tions influence  system  of  cultivation, 
146;  price,  152 N;  rate  of  wages, 
333-336. 

Nature,  Book  I.  Ch.  IV. ;   appeal  to, 

m 

Navigation,  increments  of  invention 
in,  111. 

Necessaries,  55,  63,  65,  195,  349,  351. 
(See  also  Comfort,  standard  of.) 

Negative:  utility,  8,  74,  81  (see  Disu- 
tility);  return,  157;  interest,  211, 
392,393. 

•  Neighlxmrhood,  employments  in  same, 

355. 

'Net:  advantage,  74 ;  produce,  138-141, 
199;  wages,  194;  advantages  of 
industrial  groups,  354,  355 ;  reward 
of  labour,  357 ;  interest,  394 ;  rent, 
411. 


INDEX. 


445 


Netherlands,  144. 

Nicholls,  Sir  George,  84,  227  N,  361  N, 

363  N,  3(55  N,  368  N,  372  N  seq. 
Nominal  wages,  32(5,  337,  344;   in  any 

employment,  353. 
Normal  wages:    the  term  explained, 

333,  3,'54 ;  rate  of  general  wages,  336- 

339,  355. 
Northumberland :  sheep  farming,  147 ; 

family  earnings,  328. 

OBJECTIVE  and  subjective  standpoints, 
48,  325,  326,  328,  33(5,  388. 

Occupation,  44,  45;  labour  of,  08,93; 
not  ownership,  257.  (See  also  Ap- 
propriation.) 

Occupations,  immense  variety  of,  33, 
127. 

Oncken,  37  N. 

Open-field  system,  35,  36,  112,  238, 282, 
28& 

Opinion :  an  economic  force,  15,  234 ; 
modifies  laws,  237,  256;  danger  of 
preconceived,  424  seq. 

Optional  element  in  economic  laws,  17, 
221-228. 

Organisation  of  industry,  1(5,  37,  66,  i 
94,  117,  124,  125,  201,  210,  241,  2(5(5,  ! 
346;   socialism  and,  427  seq. ;   indi- 
vidual liberty,  428-434. 

Original  qualities  of  land,  private 
property  in,  256,  257. 

Out-door  relief:  judicial  rent  may  be 
a  mode  of,  316 ;  abuses  of,  377-1381. 

Over-population,  Mill's  exaggerated 
dread  of,  164,  169,  171. 

Overseers  of  poor,  376. 

Owen,  R.  D.,  370 N. 

Ownership,  private,  in  land,  256-267 ; 
and  occupation  of  land  affected  by 
custom,  272  seq. ;  restrictions  under 
feudalism,  293-295;  modern,  Book 
II.  Ch.  VIII. ;  ethics  of,  404.  (See 
also  Land  and  Tenure.) 

PAIN,  pleasure  and,  24,  25. 

Palgrave's  Dictionary  of  Political 
Economy,  51  N,  87  N,  283  N. 

Parochial  Boards  of  Scotland,  84. 

Partaaeforce'e,  145. 

Passy,  M.,  148,  150,  162  x. 

Pastoral  produce  and  law  of  diminish- 
ing returns,  165. 

Patria  jioti  xt<m,  359,  360. 

Pauper  colonies  of  Holland,  84. 

Pauperism :  not  a  mere  hypothesis, 
188;  pensions  and,  189,  190;  agra- 


rian, 17,  195,  316,  344;  margin  of, 
349.  (See  also  Poor  Laws.) 

Payment,  varieties  in  form  of,  327. 

Peasant:  proprietors,  their  ardour, 
139;  industry,  144;  empirical  skill 
and  thrift,  ib. ;  practical  neglect  of 
law  of  diminishing  return,  158,  159, 
407;  in  Great  Britain,  308,  311,  312; 
revolts,  381,  382;  improvements  and 
security,  418. 

Peel,  Sir  R.  (Act  of  1802),  370,  371. 

Pensions,  old  age,  78, 176 ;  and  pauper- 
ism, 190. 

Personal:  capital,  38,  39,  95,  213;  ser- 
vices, 40. 

Peter  the  Great,  276. 

Petty,  331  N. 

Physical  facts,  their  place  in  economics, 
11. 

Physical  laws:  laws  of  production 
likened  to,  17,  220;  customs  in 
distribution  as  strong  as,  227. 

Physiocrats,  37  N,  67. 

Piece:  wages,  329;  work,  ib. 

Pitt,  178. 

Plato,  53,  107,  426. 

Pleasure  and  pain,  24,  25,  52. 

Plener,  E.  von,  118  N,  370  N. 

Pliny,  141. 

Political  economy:  definition  of,  3; 
province  of,  3, 4, 14, 15 ;  as  a  science, 
10;  laws  of,  10  seq.;  and  evolution, 
11, 12;  and  biology,  ib.;  and  general 
sociology,  13;  can  be  studied  to  a 
certain  extent  apart,  13,  14;  a  posi- 
tive science,  14;  excludes  compari- 
son of  ethical  ideals,  16,  231,  233, 
237,  241;  and  practice,  17;  methods 
of,  18-20 ;  fallacy  of  traditional  Eng- 
lish, 207;  its  position  in  regard  to 
state  interference,  225,  226. 

Pollock,  Sir  F.,  223  N,  237,  244  N,  272, 
291,  293,  294  N,  306. 

Poor,  the,  obligation  to  relieve,  190; 
variations  in  their  treatment,  226, 
227,  371-381. 

Poor  Laws  (English),  99;  governing 
principle,  178,  179,  190,  316;  history 
of  their  growth  and  development, 
371-381 ;  the  best  critique  on  social- 
ism, 434. 

Poor  Law  Amendment  Act  (1834),  99, 
380,  381. 

Poor  relief,  178,238,316;  old  system, 
its  effect  on  efficiency,  418,  430. 
(See  also  Poor  Laws.) 

Population:   theory  of,  151,  341.  351, 


446 


INDEX. 


Book  I.  Ch.  XI. ;  increase  of,  152, 
160;  Mill's  dread,  164,  169;  Adam 
Smith's  ideal,  179;  restraint  of,  in 
France  partly  due  to  limitation  of 
power  of  bequest,  187;  growth  of  an 
economical  objection  to  the  mir,  278 ; 
state  socialism  and,  434. 

Porter,  162  N. 

Possession,  obligations  imposed  on, 
273. 

Post-office:  saving  of  time  by,  109; 
monopoly,  135. 

Poverty:  and  over-population,  169; 
and  declining  population,  185;  vices 
engendered,  190.  (See  also  Poor, 
Poor  Laws,  and  Pauperism.) 

Power:  productive  unit  of,  172,  Book 
I.  Ch.  X.  passim,  199,  213,  221 ;  to 
save,  199-201 ;  consuming,  213. 

Precious  metals:  barren,  88;  national 
capital,  96,  419. 

Preferential  legislation,  204. 

Preparation  for  labour,  76. 

Prescription:  as  a  basis  of  private 
property,  247;  no  prescription  in 
institutions,  250;  what  constitutes, 
265. 

Pressure  of  population,  194-196. 

Pretium  affectionis,  259. 

Price:  as  measuring  utility,  51  seq.; 
does  it  actually  measure  utility? 
55-60 ;  natural,  152  N  ;  demand  ex- 
pressed by,  162 ;  the  various  species 
of  income,  cases  of,  229  ;  of  labour, 
324,  325,  342 ;  and  rent,  405, 407, 411 ; 
and  manufactures,  405,  406;  just, 
430. 

Prices:  general  level  of,  29,  151,  153, 
155 ;  low,  and  margin  of  cultivation 
in  England,  162  ;  course  of,  exempli- 
fies law  of  diminishing  return,  167 ; 
comparison  of  mediaeval  and  modern, 
167,  168 ;  course  of,  and  wages,  343, 
344 ;  of  agricultural  products,  causes 
effecting,  418-420,  423,  423 ;  course  j 
of  indeterminate,  ib. ;  general  rise  in 
16th  century,  ib.;  general  fall,  ib. ; 
of  labour  and  provisions,  350  seq. 

Primitive  societies,  34-36. 

Primogeniture,  149,  227,  252,  255,  294, 
309. 

Produce :  gross  and  net,  138-141 ;  dif- 
ferent kinds  of,  139;  influences  sys- 
tem of  cultivation,  14(5, 147 ;  annual, 
151;  net,  UK);  and  rent,  315,  405, 
410,  415;  of  labour,  345-347;  agri- 
cultural, 417  seq. 


Produce  theory  of  wages,  345,  346. 

Production:  labour  as  prerequisite  of 
wealth  emphasised  in,  9,  26,  •_'!!>: 
physical  facts  important  in,  11, 
Book  I.  Ch.  II. ;  act  of,  when  com- 
pleted, 37, 219 ;  and  consumption,  48- 
51 ;  improvements  in  methods,  69, 
152  seq.,  155,  156  seq.,  170,  172;  pro- 
duction capital,  88-90,  92 ;  on  a  large 
and  on  a  small  scale,  112,  113,  117 
seq.,  Book  I.  Ch.  VIII.;  security  and 
exchange  important  in,  113;  in  agri- 
culture, Book  I.  Ch.  IX.,  157  seq.; 
rendered  possible  by  rise  in  prices, 
195;  influenced  by  distribution.  21!i, 
238 ;  organisation  for,  taken  as  guid- 
ing principle  of  distribution,  231  seq., 
255;  feudal  organisation  for,  290 
seq. ;  socialist  view  of  existing  sys- 
tem, 427;  state  control  of,  432  seq. 
(See  also  Cultivation.) 

Productive  :  agents  (see  Agents) ; 
power,  39 ;  unit  of,  172,  199,  213  (nee 
also  Book  I.  Chs.  VII.  and  X.); 
powers,  apportionment  of,  'Jlit;  or- 
ganisation taken  as  guiding  princi- 
ple of  distribution,  231  seq.,  255; 
efficiency  of,  the  end  of  security, 
246. 

Productive  and  unproductive:  con- 
sumption, 48-51 ;  labour,  Book  I. 
Ch.  II.  213. 

Productiveness  of  industry,  171 ;  will 
probably  increase  markedly  in  agri- 
culture, 173,  174. 

Profits:  influence  of  rates  on  size  of 
farms,  147, 148;  origin  of,  198;  their 
relation  to  real  net  produce,  199; 
price  paid  for  use  of  capital,  229; 
on  rate  depends  supply  of  Capital, 
343,  Book  II.  Ch.  XIII.;  distinct 
from  rent,  402,  403;  differential,  is 
rent,  406;  exceptional,  is  rent,  406, 
407;  effect  of  application  of  Capital 
beyond  marginal  limit,  407,  408; 
and  interest,  408;  profit-rent,  410, 
415;  quasi-rent  is  profit,  414. 

Profit-sharing,  83. 

Progress  of  society:  from  status  to 
contract,  38,  230,  300,  325;  how  ar- 
rested, 39;  self-interest  the  main- 
spring, 81-86;  from  inheritain-r  to 
bequest,  249;  from  blood-relation- 
ship to  individual  free  loin,  '_'.">!  ; 
marked  by  disintegration  of  family, 
Hi. ;  and  of  village  community,  e.g., 
in  Russia,  277,  278;  in  England  and 


INDEX. 


447 


India,  285,  289;  and  of  kindred  cus- 
toms, 2*9:  money  the  chief  factor 
in,  :»0-3Q5,  433;  marked  also  by  dif- 
ferentiation of  tenure  and  ownership 
of  land,  312,  313;  competition  the 
great  agency  of,  429-434;  socialists 
would  reverse  this,  4:'.:;. 

Property  and  economic  utility,  2<i.  '_'7. 

Property,  private:  relationship  of  po- 
litical economy  to,  14:  viewed  from 
economic  standpoint.  24:  appropri- 
ation a  conception  not  limited  to, 
27;  assumptions  of  recent  writers 
regarding,  229 :  logically  a  condition 
precedent  to  exchange,  230:  politi- 
cal economy  and,  233,  Book  II.  Ch. 
II. :  inheritance  not  a  part  of  the 
idea,  250;  is  freedom  of  bequest 
essential  to  the  idea?  253;  in  land, 
256  seq. ;  cases  in  which  it  should  be 
restricted,  262-264;  absence  or  modifi- 
cation of.  271 :  right  of  limited  under 
feudalism,  272,  273:  way  opened  for 
its  acquisition  in  Russia,  277;  will 
displace  the  village  community  in 
Russia,  278,  279:  state  socialists 
would  nationalise  instruments  of 
production.  427  seq. 

Proprietor  of  land,  is  he  necessarily 
the  improver,  257,  258.  (See  also 
Landlord.) 

Protection:  English  system,  99;  to 
native  industries  in  middle  ages, 
114-116 ;  of  the  weak,  and  custom, 
270. 

Prussia,  agrarian  legislation,  312. 

Psychology,  10,  12. 

Public  interest,  promotion  of,  856. 

Purchasing  power  of  money,  167,  168, 
215,  2i>;.  :.•-•:,  419. 

QUALITY  :  of  wine  and  law  of  dimin- 
ishing return,  166;  of  population, 
187 ;  of  land  varies,  405. 

Quantity  of  labour  (subjective),  8,  62; 
explained.  7.">-7.">;  causes  of  varia- 
tions in.  75-7S,  :wi,  330,  336;  Trade 
Unions  and,  383. 

Qwosj-rent :  use  of  term  misleading, 
412:  differential  profits  for  a  time, 
413;  conjunctur  profits,  414. 

Quesnay,  140. 

RACE  qualities,  influence  on  efficiency, 

78,  79. 

Rack-rent,  311,316,319. 
Raw  produce  and  manufactures,  re- 


marks on  division  of  wealth  into, 
174. 

Real  cost  of  labour,  328-331,  388,  420. 

Real  wages,  elements  of,  326-328,  330, 
337,  344,  383. 

Reciprocal:  demand,  347,  348,  396; 
exchange  of  services  of  productive 
agents,  229. 

Regulated  companies,  132. 

Relative  wages,  Book  II.  Ch.  XI. 

Relief  (a  feudal  payment),  2H">. 

Relief  of  the  poor,  see  Poor  Relief  and 
Outdoor  Relief. 

Rent:  consumer's,  57-65;  gross  pro- 
duce and,  140;  and  cost  of  produc- 
tion, 62,  63;  in  what  sense  it  may 
render  land  inferior,  163;  its  share 
of  net  produce,  199;  price  paid  for 
use  of  land,  229;  produce  rents,  302; 
labour  rents,  ib. ;  under  free  trade, 
314,  315;  fair  or  judicial,  315-318; 
labourer's  rent,  351 ;  economic  rent, 
Book  II.  Ch.  XIV. ;  monopoly  rent, 
409,410;  <?M«s/-rent,  411-414;  Ricar- 
do's  doctrine  not  of  practical  utility, 
417 :  causes  which  determine  fair 
rent,  417-423.  (See  also  Land  and 
Profits. ) 

Requisites  of  Production,  see  Agents. 

Revenue  capital,  87,  88. 

Reward,  proportionment  of,  to  work, 
239. 

Ricardo :  standard  of  value,  60,  62,  92, 
152 x,  153N,  169,  194;  on  price  of 
labour,  324,  338,  349  x;  theory  of 
rent,  Book  II.  Ch.  XIV.  passim,  417, 
428. 

Richey,  150  x,  312 N,  314  N,  319. 

Ridgeway,  Prof.,  28  x,  41  N. 

Risk,  indemnity  for,  388;  insurance 
against,  389,  393,  395,  396-399. 

Rogers,  Thorold,  19,  37,  41,  42,  68 N, 
116  N,  147, 155,  156, 164,  167,  194,  195, 
285  N,  294,  301  N,  303,  327,  331,  364  N, 
366,  367,  382. 

Roman:  self-interest,  82,  83;  Empire, 
fall  of,  239;  power  of  testation,  249; 
pater  familias,  274 ;  in  Britain,  286, 
287 ;  jurists,  314 ;  slavery,  358 ;  patria 
potestas,  359;  servile  wars,  381. 

Roscher,  5x,  49  x,  50,  185 x,  196 x,  211. 

Ross,  AValter,  ::«.H  x. 

Roundsman  system,  378. 

Run-rig  system :  in  Scotland  and  Ire- 
land, 273,  288;  not  in  Russia,  276. 

Ruskin,  John,  25,  26,  33x,  118,  119. 

Russia:  economic  condition  compared 


448 


INDEX. 


with  England,  120;  Jews  in,  209, 
245;  rmr,  273-279, 288, 303;  usury  in, 
392. 

SACRIFICE  as  prerequisite  of  wealth, 
6,9. 

Sadler,  Mr.,  371. 

Salisbury,  the  council  of,  its  real  im- 
port, 298. 

Sanitary  conditions  and  efficiency  of 
labour,  80. 

Saving:  not  hoarding,  91;  capital  the 
result  of,  100,  197;  what  it  implies, 
212;  of  time  by  division  of  labour,  109. 

Saxons,  the,  in  Britain,  286. 

Schanz,  116  N,  132  N. 

Schloss,  D.,  329  N. 

Schmoller,  123N. 

Schoenhoff,  J.,  332  N,  352 N. 

Schonberg's  Handbook,  46 N,  70 N,  87 N. 

Sciences,  division  of,  10. 

Scotland:  Parochial  Boards  of,  84; 
villages  and  division  of  labour,  107 ; 
Highlands  of,  deer  forest  or  sheep 
farm,  139;  undue  subdivision  of 
land,  145;  sheep  farming,  147; 
farmers  in,  158,  159;  increase  of 
sheep  in,  165;  congested  areas,  195; 
access  to  hills,  262;  run-rig  system 
in,  273;  survivals  of  common  culti- 
vation, 280;  tribal  community  in, 
287, 288 ;  simplified  land  tenure,  307, 
309;  payments  in  kind,  327. 

Scott,  Sir  Walter,  38,  47. 

Scottish  crofters,  145,  158;  tenant 
farmers,  310;  obtain  judicial  rents 
and  fixity  of  tenure,  320;  farming, 
417,  418. 

Scrutton,  Prof.,  305 N,  306 N. 

Scutage,  301. 

Securities,  first-class,  yield  to,  394,  395. 

Security:  of  labour,  81,  94,  113;  as 
affecting  the  will  to  save,  201-205 ;  a 
condition  precedent  of  contract  and 
private  property,  243-245 ;  criticism 
of  Bentham's  views  on,  245-247;  an 
economic  basis  of  prescription  as  a 
title  to  property,  247,  248,  250;  an 
argument  for  inheritance,  252;  and 
compensation  for  expropriation,  264 ; 
effects  of  shock  to,  266 ;  increase  of, 
a  cause  of  decay  of  feudalism,  298- 
300;  of  tenure,  319;  as  affecting 
accumulation  of  capital,  398,  399; 
afforded  by  ownership,  418. 

Seebohm,  F.,  35,  45,  83 N,  110,  145 N, 
238 N,  277,  281, 282  N,  283 N,  286,  287. 


Self-interest:  relation  of  political 
economy  to,  14 ;  the  mainspring  of 
economic  progress,  81-86;  compara- 
tive want  of  in  joint-stock  manage- 
ment, 134,  135 ;  the  great  motive  to 
industry,  239. 

Senior,  9,  154,  381  N,  388  N. 

Separation  of  employments,  106-108. 

Serfdom,  83 ;  gives  place  to  free  labour, 
226,  245 ;  in  Russia,  275,  276 ;  in  med- 
iaeval manor,  283-285,  287;  money 
payments  and  abolition  of,  302-305, 
325,  358,  359;  a  species  of  permanent 
apprenticeship,  364,  366,  431. 

Services:  personal,  40;  economic,  46, 
221;  exchange  of,  229,  230;  coo- 
mutation  of,  301 . 

Settlement  laws,  366,  367,  375. 

Shaftesbury,  Lord,  371. 

Shipbuilding,  progress  of,  111. 

Sidgwick,  Prof.  H.,  6  N,  52  N,  53  N,  73  N, 
103  N,  154  N,  223  N,  226  N,  229  N,  231  N, 
232,  233  N,  267  N,  269  N. 

Situation:  of  country,  71;  of  land, 
258,  277,  410. 

Skill:  is  it  wealth?  30,  31;  is  it  capi- 
tal? 95,  96;  specialisation  of,  108; 
scientific,  of  large  farmer,  144  ;  em- 
pirical, of  small  farmer,  ib.,  147;  of 
farmer,  418. 

Slavery:  substitution  of  freedom  for, 
38;  abolition  of,  82,  83;  unfavourable 
to  propagation,  185;  early  and  en- 
during form  of  poverty,  221  ;  gives 
place  to  free  labour,  226 ;  and  ineffi- 
ciency, 239 ;  in  British  colonies,  264 ; 
in  medieeval  manor,  283,  325,  330; 
in  Russia,  345;  cheaper  to  import 
than  to  rear  slaves,  349;  transition 
to  free  labour,  357-359,  381 ;  bank- 
ruptcy and,  391. 

Smart,  Dr.,  29  N,  56  N,  87  N,  390  N. 

Smith,  Adam,  3,  4;  ambiguity  of  term 
value,  8;  quantity  of  labour,  8,  73, 
74 ;  nature  of  his  work,  9 ;  and  later 
dogmatists,  11,  15;  his  natural  the- 
ology, 16,  25,  30;  Church  of  Rome, 
41,  42,  43;  education  of  youth,  43; 
consumption,  48;  labour  the  real 
standard  of  value,  60,  61;  Nature's 
part  in  production,  67,  68,  93;  agree- 
able employments,  73;  intensity  of 
labour,  75 ;  preparation  for,  76 ;  over- 
application,  77 ;  Afayna  virum  mater, 
78 N;  self-interest,  81,  85;  slave  la- 
bour, 83 ;  capital,  90,  91 ;  skill  capi- 
tal, 95 ;  fixed  and  circulating  capital, 


INDEX. 


449 


96 ;  balance  of  production  over  con- 
sumption, 100;  capital  and  industry, 
103  N;  division  of  labour,  104-106, 
107  N;  philosophers,  etc.,  r.  iuven- 
tors,  109;  foreign  trade  and  division 
of  labour,  118;  laws  against  expor- 
tation of  wool,  sheep,  etc.,  115;  evils 
of  division  of  labour,  118, 119;  com- 
merce of  towns  and  improvement  of 
country,  119;  apprenticeship,  124, 
363 ;  Joint  Stock  Companies,  132, 133, 
134;  Regulated  Companies,  ib.;  cat- 
tle and  sheep-farming,  147 ;  cost  of 
production  of  corn,  164 ;  vineyards, 
166  N  ;  division  of  labour  and  in- 
creasing return,  171,  172;  improve- 
ments and  real  price  of  manufactures, 
173;  population,  178,  179,  183,  184; 
Malthus's  real  advance  upon,  1S4; 
parochial  education  to  raise  standard 
of  living,  191;  colonists,  200;  secu- 
rity, 202;  the  feudal  baron,  208; 
capital  best  secured  in  the  cultiva- 
tion of  land,  212,  220;  weakness  of 
the  State,  225,  226;  ideal  economic 
distribution,  231 ;  natural  liberty, 
232;  economic  expenditure,  ib.;  de- 
fence prior  to  opulence,  237;  agri- 
culture after  fall  of  Roman  Empire, 
239;  educational  endowments,  L'.~U ; 
crown  lands,  261 ;  vexation  equals 
expense,  263;  feudalism,  295  N,  298, 
299, 300 ;  payments  and  privileges  of 
towns,  304;  progress  of  towns  and 
improvement  of  country,  305;  on 
Cameron  of  Lochiel,  310 N;  wages 
its  real  reward,  326;  labour  a  com- 
modity, 329;  theory  of  wages,  332; 
general  rate,  338,  339,  346 ;  relative, 
348, 353-35(5 ;  minimum,  349, 350, 351 ; 
laws  favour  masters,  365;  laws  of 
settlement,  366,  3(57,  376 N;  truck, 
368;  masters  in  tacit  combination, 
381 ;  relative  weakness  of  labour, 
383 ;  Bank  of  Amsterdam,  392 ;  effect 
of  high  rate  of  profits,  393,  394 ;  rel- 
ative profits,  3(.»6,  397;  fluctuation 
of  rate  of  profit,  399 ;  rent  monopoly 
price,  412,  413;  increase  of  town 
population  raises  rents,  415;  indi- 
vidual liberty,  428. 

Smith's  Mercantile  Law,  368w. 

Social :  science,  political  economy  a, 
12 ;  evils  of  division  of  labour,  120, 
121.  L'4'.i,  •_'')().  -JtU  (ni'c  (linn  Economic 
phenomena);  contract,  '_'•_!.">. 

Socialism :  value  of  discussions  on,  16, 


234,  241;  r.  individualism,  24,  426- 
4,'>4 ;  crude  forms  neglect  higher 
forms  of  labour,  400. 

Socialistic :  interpretation  of  industrial 
development,  129,  131 ;  Mill's  criti- 
cism of  schemes,  221,  226. 

Socialists:  their  ridicule  of  "absti- 
nence," 198;  hostility  to  freedom 
of  contract,  242;  their  clamour  for 
abolition  of  money,  300,  301. 

Societies,  primitive,  34-36,  227.  (Cf. 
Custom,  Village  Communities.) 

Sociology,  general,  relation  of  political 
economy  to,  13. 

Soil:  "original  and  indestructible 
powers  "  of,  92,  256, 403, 412 ;  quality 
of,  affects  system  of  cultivation,  147 ; 
recourse  to  inferior,  405  seq.  (See 
also  Law  of  Diminishing  Return, 
Rent.) 

South  Sea  Bubble,  134. 

Sovereignty,  the  theory  of,  222,  223; 
its  application  to  the  distribution  of 
wealth,  223-228. 

Spain,  69,  200. 

Specialisation :  of  capital,  97, 108  seq.; 
of  skill,  108  seq.,  122;  of  localities, 
114  seq. 

"  Speenhamland  Act  of  Parliament," 
377. 

Spender,  368  X. 

Standard :  of  comfort  or  wretchedness, 
see  Comfort,  Wretchedness ;  of  value, 
see  Purchasing  power. 

Starvation,  the  world  within  a  year 
of,  211. 

State:  credit,  proposals  for  extension 
of,  176;  management  of  the  land 
contrasted  with  landlord  and  tenant 
system,  259-262;  socialism  v.  indi- 
vidual liberty,  426-434. 

State,  the :  and  the  standard  of  com- 
fort, 192;  its  weakness  in  matters 
affecting  distribution  of  wealth,  224- 
226,  228;  its  economic  claim  as  re- 
gards inheritance,  250;  its  duty  in 
cases  of  intestacy,  251-253;  and  in- 
dustrial organisation,  42(i-434. 

Statical  form  of  laws  of  diminishing 
and  of  increasing  return,  152,  153, 
167. 

Status,  movement  from,  to  contract, 
see  Contract. 

Stewart,  Dugald,  104,  108,  122,  176. 

Stewart,  Sir  James,  85,  86,  101, 102. 

Stoic  principles,  252. 

Strikes,  17,  344,  384,  385. 


450 


INDEX. 


Stubbs,  202,  290  N,  291 N,  292,  296  N, 
297  N,  298,  301  N,  302  N,  372  N. 

Subjective  and  objective  standpoints, 
48,  49 ;  in  re  wages,  325,  326, 328,  336 ; 
in  re  profits,  388. 

Subsidiary  industries,  116;  counteract 
tendency  to  concentration,  130. 

Subsistence,  means  of,  169 ;  population 
and,  179-196  passim,  349. 

Succession  duties,  effect  of  very  heavy, 
253. 

Sumptuary  laws,  366,  367. 

Sunk  capital,  97. 

Superficial  appearance  of  country,  71. 

Superintendence,  wages  of,  388,  392, 
399,  400,  433.  (Cf.  Management.) 

Supply :  exceptional  conditions  of,  167 ; 
and  demand,  adjustment  of,  201 ;  as 
conditions  of  contract,  242 ;  as  de- 
termining price  of  labour,  324,  325, 
342,  354,  355 ;  and  rent,  405,  40(5,  407, 
411. 

Surplus,  annual,  199. 

Survival  of  the  fittest,  177,  178. 

Survivals :  of  village  communities,  280 
seq. ;  of  old  laws  and  customs,  307; 
socialism  and,  427. 

Sustaining  capital,  97. 

Sutherland,  county  of,  145,  158. 

Swift,  426. 

Switzerland,  the  Allmends  of,  280. 

Syria,  202. 

TACITUS,  404  N. 

Task-wages,  329. 

Taxation,  92,  213,  214;  excessive,  238, 
253  N. 

Taxes,  267. 

Taylor,  Cooke,  46  N,  120  N,  123,  125, 
126,  361  N,  370  N. 

Taylor,  Canon  Isaac,  36  N,  282. 

Tenant  farmers,  239,  310,  418.  (See 
also  Landlord  and  Tenant.) 

Tenant  right,  319  seq. 

Tenure  of  land :  customary,  226 ;  in 
village  communities,  Book  II.  Ch. 
VI.;  feudal,  291-295;  obligations  in- 
cident to,  305 ;  germs  of  freedom  of 
contract  present  in  early,  324. 

Terrace  cultivation,  36 ;  origin  of,  162 ; 
in  Syria,  202. 

"Things,"  wealth  implies  something 
more  than,  23. 

"  Things  in  general,"  2<t. 

Thornton,  383 N,  384,  385. 

Three-field  system,  275,  277,  286. 

Thrift  of  peasant  proprietors,  144,  145. 


Thucydides,  205  N. 

Time:  of  labour,  75;  full  occupation 
during,  122;  an  important  element 
in  industrial  contracts,  244 ;  wages, 
326,  329 ;  and  quantity  of  labour,  ib.  ; 
unit  of  work,  329;  barren,  390. 

Total  utility,  51,  53  seq.;  cannot  be 
measured  by  money,  57-60,  63,  (>.">. 

Towns  :  immigration  to,  119,  120,  421 ; 
manorial,  overlordship  of,  295-25)7 ; 
communal  responsibility,  297 ;  fixa- 
tion of  payments  and  purchase  of 
privileges,  304,  305 ;  increase  of, 
raises  rent,  415. 

Trade  Unions,  16;  and  wages,  341, 
383-385 ;  their  nature  and  aims,  £82, 
383 ;  mutual  assurance  societies,  385, 
386;  evil  tendencies,  386,  387;  a 
power  for  good,  432. 

Traditional  ideas  and  rules  v.  specu- 
lative theories,  224. 

Transfer  of  land  :  influence  of  simpli- 
fied system  in  creating  small  prop- 
erties, 149;  many  difficulties  in 
England  traced  to  feudalism,  293; 
origin  of  secrecy  in,  305;  difficulties 
of,  307-309. 

Transport,  a  species  of  production,  37, 
46. 

Tribal  community :  in  west  of  Britain 
and  Ireland,  287,  288;  land  free  to, 
404. 

Truck  system,  240  N,  368,  369. 

Trusts:  to  evade  succession  duties, 
253;  to  evade  incidents  of  feudal 
tenures,  305. 

Turgot,  88,  157. 

Turkey,  202. 

Tylor,  34  N. 

ULSTER,  divided  ownership  and  tenant 
right,  260,  261. 

Unearned  increment,  92. 

Unit  of  productive  power,  172. 

United  Kingdom:  money-market,  33, 
49;  property  in  land,  141;  rural  de- 
population of,  187 ;  operation  of 
positive  checks  in,  188;  foreign  trade 
and  growth  of  wealth,  200;  decennial 
increase  of  wealth,  214,  215;  foreign 
competition,  261 ;  ownership  of  land 
in,  312;  new  fetters  on  land  owner- 
ship, 313;  regulations  in  favour  of 
workers,  371 ;  interest  on  capital, 
433. 

United  States:  public  domain,  44,  45, 
261 ;  rate  of  increase  of  population, 


INDEX. 


451 


182  N;  census  of  national  wealth, 
214;  contrast  with  English  farms, 
282 ;  abolition  of  slavery  in,  359. 

Unproductive,  see  Productive. 

Usury:  Mediaeval  Church  condemna- 
tion of,  41,  87,  92,  209,  260 ;  in  Russia 
and  Germany,  311 ;  Tudor  Parlia- 
ments and,  389-392,  396, 

Utilitarianism,  7,  23,  233,237,  255. 

Utility,  7,  9,  Book  I.  Ch.  I.;  total  and 
tinal  or  marginal,  31,  53  seq. ;  pro- 
duction in  terms  of,  32, 37, 45, 48 ;  im- 
material, 38;  consumption  in  terms 
of,  49;  destruction  of,  50;  special 
and  general,  ib. ;  can  it  be  measured 
in  terms  of  price,  51,  55-60;  law  of 
diminishing,  54;  as  measured  by 
labour,  61  seq.,  63  seq. ;  limited  and 
unlimited,  68;  material  and  imma- 
terial, 95;  maximum,  232;  wages 
,  as,  326 ;  profits  as,  388. 

Utopias,  15,  228,  241,  Book  II.  Ch.  XV. 

VAGABONDS,  372  seq. 

Value,  exchangeable:  as  prerequisite 
of  wealth,  6,  8;  emphasised  in  ex- 
change, 10;  a  distincti%re  mark  of 
economic  utilities,  26,  27,  28,  29;  of 
ideas,  40  seq.,  46;  theory  of,  162; 
money  value  as  measuring  growth 
of  wealth,  213-216;  recent  use  of 
term,  229 ;  relative  values  and  gen- 
eral prices,  419. 

Variations  in  distribution,  historical 
examples,  226-2'_'!». 

Verney,  Lady,  143, 144,  145. 

Vested  interests,  protection  of,  117. 

Village  communities,  120,  257;  custom 
and,  Book  II.  Chap.  VI.,  302. 

Villein,  83, 119,  202,  203;  in  mediaeval 
manor,  283-285;  emancipation  of, 
302,  303. 

Vineyards,  as  illustrating  law  of  di- 
minishing return,  165, 166. 

Vinogradoff,  Paul,  273 N,  281  N,  283 N, 
285  N. 

Virgate,  or  villein  holding,  284,  285. 

Voluntary  associations  of  employers 
and  employed,  226. 

WAGE  capital,  97. 

Wages:  relative  and  small  farming, 
148 ;  low  wages  ascribed  by  Mill  to 
over- population,  164,  169;  an  im- 
provement in  net  wages  tends  to 
raise  standard  of  comfort,  194;  as 
price  of  labour,  229,  Book  II.  Ch. 


X.;  relative,  Book  II.  Ch.  XI.; 
effects  of  law,  custom,  and  combina- 
tion on,  Book  II.  Ch.  XII.;  of 
management  or  superintendence, 
388,  389,  392,  393,  399,  400,  433; 
ethics  of,  391 ;  rent  and  wages,  410 ; 
tend  to  follow  course  of  prices,  419; 
socialists  and  "necessary"  wages, 
427. 

Wages-fund  theory,  98,  339-343 ;  criti- 
cism of,  343-345;  omitted  elements, 
346;  combined  with  produce  theory, 
346,347. 

Waiting  substituted  for  abstinence, 
390,  391. 

Wakefield,  104. 

Wales,  147. 

Walker,  Prof.,  28  N,  44,  45,  79  N,  161  N, 
326  N,  368  N,  369  N,  399  N. 

Wants,  new,  and  new  luxuries,  coun- 
teract tendency  to  concentration  of 
labour  and  capital,  131. 

Water,  71. 

Wealth  of  Nations,  see  Adam  Smith. 

Wealth:  popular  conception  of,  5; 
economic  conception  of,  6-10;  con- 
ceptions involved  in  Mill's  definition, 
7-9;  human  element  in,  11,23;  ma- 
terial and  immaterial  economic 
utilities,  30,  31,  32,  33;  production  of 
material,  32-37;  not  creation,  32,  37; 
production  of  personal  or  immate- 
rial, 37-44,  219;  and  worth,  207,  208; 
and  common  sense  morality,  208; 
distribution  of  national,  208;  of 
nations,  estimate  of  its  growth,  213 
seq. ;  use  of  such  estimates,  216 ;  how 
divided  for  consumption,  219;  land 
the  most  important  item,  404. 

Wheat:  production  of,  in  England, 
155,  157;  recently  contracted,  162, 
163;  rate  of  increase,  180 N;  fall  in 
price,  187,  420,  422,  423. 

Will  to  save,  201  seq. 

William  the  Conqueror,  114,  263,  298, 
299. 

Williams,  Price,  196  N. 

Williams's  Real  Property,  272  N. 

Wool,  English,  cause  of  recent  fall  in 
price,  166. 

Work :  pleasure  of,  73 ;  strain  of,  78 ; 
connection  of  reward  with,  239;  lia- 
bilities for  extra,  328 ;  wages  as  the 
payment  of,  328,  329;  amount  of, 
how  measured,  329;  conditions  of, 
affected  bylaw  and  custom,  330,  331, 
357. 


452 


INDEX. 


Working  classes,  economic  progress  of  : 
how  estimated,  330,  337 ;  has  their 
condition  been  ameliorated?  331; 
Mill's  view  of,  based  on  wages-fund 
theory,  341 ;  after  Black  Death,  ib. 

Wretchedness,  standard  of,  190  seq. 
(See  also  Comfort.) 

Wright's  Roman,  Celt,  Saxon,  46  N. 


XENOPHON,  108  N. 

YEOMANRY:   decay  of,  141;  origin  of 

English,  303. 
Young,  Arthur,  139, 145  N,  196,  319  N. 

ZEMINDARS,  279. 


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19 


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MACMILLAN   &  CO., 

112    FOURTH   AVENUE,   NEW  YORK. 
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